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Industry Agenda

Shaping the Future of


Construction
A Breakthrough in Mindset
and Technology
Prepared in collaboration with The Boston Consulting Group
May 2016
Content

Forewords 3
Contributors 6
Context and Objectives of the Report 8
Executive Summary 9
1. Introduction: The Construction Industry Time for a Transformation 11
1.1. The industry is crucial to society, the economy and the environment 11
1.2. The industrys future will be shaped by a number of megatrends 12
1.3. The industry must also confront internal challenges 14
1.4. The industry is ripe for and capable of transformation 16
2. Companies as the Spearhead of Transformation 18
2.1. Technology, materials and tools 18
2.2.
Processes and operations 26
2.3. Strategy and business model innovation 32
2.4. People, organization and culture 36
3. The Industry As a Whole Needs to Drive Transformation 40
3.1. Industry collaboration 40
3.2. Joint industry marketing 42
4. Government Needs to Encourage and Support this Transformation 44
4.1.
Regulation and policies 44
4.2. Public procurement 47
5. The Way Forward 49
Abbreviations 50
Appendix: Future of Construction Survey Results 51
Endnotes 55
Bibliography 58

World Economic Forum

2016 All rights reserved.


No part of this publication may be reproduced or
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Forewords

Foreword from the World Economic Forum


The world is changing faster than ever before. Consider just one of the global
megatrends shaking up the construction industry: the population of the worlds
urban areas is increasing by 200,000 people per day, all of whom need affordable
housing as well as social, transportation and utility infrastructure. In the face of
such challenges, the industry is almost under a moral obligation to transform. Its
transformation will have transformative effects elsewhere: on the wider society,
by reducing construction costs; on the environment, by improving the use of
scarce materials or by making buildings more eco-efficient over time; and on the
economy, by narrowing the global infrastructure gap and boosting economic
development in general.

While most other industries have undergone tremendous changes over the last
few decades, and have reaped the benefits of process and product innovations,
the Engineering & Construction sector has been hesitant about fully embracing
the latest technological opportunities, and its labour productivity has stagnated
accordingly. This unimpressive track record can be attributed to various internal
and external challenges: the persistent fragmentation of the industry, inadequate
collaboration with suppliers and contractors, the difficulties in recruiting a talented
workforce, and insufficient knowledge transfer from project to project, to name
just a few.

The industry has vast potential, however, for improving productivity and efficiency,
thanks to digitalization, innovative technologies and new construction techniques.
Consider the rapid emergence of augmented reality, drones, 3D scanning and
printing, Building Information Modelling (BIM), autonomous equipment and
advanced building materials all of them have now reached market maturity.
By adopting and exploiting these innovations, companies will boost productivity,
streamline their project management and procedures, and enhance quality and
safety. To capture all this potential will require a committed and concerted effort
by the industry across many aspects, from technology, operations and strategy
to personnel and regulation.

This report begins with an assessment of the industrys present state and the
global trends that will impact on the industry. It then introduces a conceptual
industry-transformation framework, listing a number of measures, grouped in
eight topical areas, that would profoundly change the industry system. The
measures are classified into three groups: measures taken by private companies
on their own; measures taken by companies in collaboration with their peers or
by the industry as a whole; and measures taken by the government, acting both
as the regulator and as a major project owner. For each of the topical areas, the
report identifies current best practices, and provides illustrative case studies of
innovative approaches, to prepare for the industrys transformation. The eight
topical areas are:

Technology, materials and tools


Processes and operations
Strategy and business model innovation
People, organization and culture
Industry collaboration
Joint industry marketing
Regulation and policies
Public procurement

Shaping the Future of Construction: A Breakthrough in Mindset and Technology 3


The World Economic Forum Future of Construction project is a collaborative
endeavour, aimed at supporting the Engineering & Construction sector as it
pursues its transformation. (Collaboration is, or should be, a hallmark of the
construction industry itself: the industrys future success will rely heavily on
effective collaboration among all stakeholders.) The project is planned as a
multiyear effort. In its first year, the project is commencing with this wide-ranging
report a detailed map to help navigate the current industry transformation.
Subsequently, the project will focus on specific topics; for example, the ways
that new technologies, materials and processes will improve the project delivery
and the life-cycle performance of buildings, and the ways of selecting relevant
measures from the industry transformation framework.

The report involved input from a great many companies active along the
construction value chain suppliers of building materials, chemicals and
construction equipment; contractors; and engineering, architecture and planning
firms as well as project owners and developers, academics, and leaders from
government, civil society, and industry organizations. In this regard, we would
like to express our gratitude to the World Economic Forum partner companies
that served on the Future of Construction project Steering Committee:
Acciona; Aecon; AkzoNobel; Amec Foster Wheeler; ArcelorMittal; Arup; BASF;
Consolidated Contractors Company; Danfoss; Essar Group; Fluor; Lixil; Perot
Group; SAP; Siemens; Skanska; SNC-Lavalin; Tarkett; and WS Atkins. And
we extend a special acknowledgement and particular thanks to John M. Beck
(Executive Chairman of Aecon Group Inc.), David T. Seaton (Chairman and Chief
Executive Officer of Fluor Corporation) and Uwe Krger (Chief Executive Officer
of WS Atkins) for their unwavering interest in and commitment to the Future of
Construction Initiative.

We would also like to thank the many experts who contributed to the report
through their role on the Future of Construction project Advisory Committee:
Victor Chen Chuan (Sichuan University), James Dalton (USACE), Juan Elizaga
(ENCORD), Timothy Geer (WWF), Tiago Guerra (TG International Manager),
Shervin Haghsheno (Karlsruhe Institute of Technology), Franziska Hasselmann
(University of St Gallen), Markus Kraft (University of Cambridge), Fiona Murie
(BWI), Ibrahim Odeh (Columbia University), Aristeidis Pantelias (University College
London), Spiro Pollalis (Harvard Design School), Norbert Pralle (ENCORD),
Bob Prieto (Strategic Program Management LLC), Aaron B. Schwarz (Plan A
Architecture + Design), Douglas Stollery (Stollery Charitable Foundation), Jan Van
Schoonhoven (Netherlands Government), Enrico Vink (FIDIC), Edmundo Werna,
(ILO), and James X. Zhan (UNCTAD).

The experience, perspectives and guidance of all the above-mentioned


people and organizations have informed and enriched a number of remarkable
discussions, notably at the World Economic Forum Annual Meeting of the
New Champions, Dalian, September 2015; the Future of Construction Initiative
Steering Committee, New York, December 2016; and the World Economic
Forum Annual Meeting 2016 in Davos-Klosters.

Pedro Rodrigues de Almeida Manuel Zafra Solas


Head of Basic Industries Practice Lead, Engineering and
and Member of the Executive Construction Industries
Committee Infrastructure and Urban Development
World Economic Forum World Economic Forum

4 Shaping the Future of Construction: A Breakthrough in Mindset and Technology


Foreword from the Infrastructure and Urban
Development Co-Chair
The digital revolution of the last half century has made the world a much smaller
place opening markets, creating new products and goods, and facilitating
rapid industrialization in emerging economies. The pace of innovation, with
improved communication and increased productivity, has been remarkable
in many sectors, including health sciences, education and consumer goods.
In the automobile industry, for example, robotics, computerized design and a
host of other technical and work process innovations have helped to create a
global industry that is now more productive and cost-effective, and increasingly
environmentally friendly and sustainable.

The Engineering and Construction (E&C) sector has been slower to adopt and
adapt to new technologies than other global sectors. While innovation has
occurred to some extent on the enterprise or company level, overall productivity
in the sector has remained nearly flat for the last 50 years. As an industry based
on competitive procurement models, E&C has historically taken a conservative
approach to product design and delivery, leading to silos in project management
and a somewhat fragmented industry.

This slow pace of innovation matters, because of the great scope and scale of
E&C. The industry accounts for about 6% of global GDP and is growing. In parts
of the developing world, such as India, it can account for more than 8% of GDP.
E&C is the largest consumer of raw materials and other resources, using about
50% of global steel production and more than 3 billion tonnes of raw materials.
Any improvement in productivity and successful adoption of modern innovative
processes will have a major impact. For example, a 1% rise in productivity
worldwide could save $100 billion a year.

Our work at the World Economic Forum has focused on how the E&C industry
can take advantage of new technologies and work processes to move the
industry forward. It builds on the Forums four-year initiative on strategic
infrastructure. This report is the first in a multi-year series that will look at the
supply side of E&C. It is a call to action for the modernization of the industry and
a roadmap for achieving that goal. The report is the outcome of wide-ranging
discussions across different sectors and locations; its recommendations derive
from best practices not only of the E&C industry but of other industries as well.
The report stresses collaboration, a holistic view of project management and
information sharing all critical elements for the future of the E&C industry.
For many in the industry, especially in the private sector, this is a new and
possibly radical approach, but these elements are the path to a more innovative,
productive and socially responsible future. In this report alone, 30 such
approaches are detailed, along with examples of supporting best practices.
I would like to acknowledge and thank my co-chair, Ajit Gulabchand ( Chairman,
Hindustan Construction Company, India) and the members of the Steering and
Advisory Committee for their contributions and support.

The Future of Construction Project requires the commitment and


encouragement of many active participants in our industry people who believe
in a modern E&C industry that will benefit all.

John M. Beck
Executive Chairman
Aecon Group, Canada

Shaping the Future of Construction: A Breakthrough in Mindset and Technology 5


Contributors ArcelorMittal
Patrick Le Pense, Manager, Flat Products, Business
Development Construction - Infrastructure, Luxembourg
Chairman and Chief Executive Officer: Lakshmi Mittal

Arup
Project Team Peter Chamley, Director; Chair, Global Infrastructure
Practice, United Kingdom
Andreas Renz Chairman: Gregory Hodkinson
Project Manager, Shaping the Future of Construction
World Economic Forum BASF
Dirk Funhoff, Head, Construction Network Team,
Manuel Zafra Solas
Germany
Practice Lead, Engineering and Construction Industries
Chairman: Kurt Bock
Infrastructure and Urban Development
World Economic Forum Consolidated Contractors Company
Jamal Akl, Group Vice-President, Sales, Proposals and
Support, Greece
Editors Antoine Haddad, Vice-President, Sales, Estimation and
Proposals (Civil), Greece
World Economic Forum President, Engineering and Construction: Samer S.
Pedro Rodrigues de Almeida Khoury
Head of Basic Industries, Member of the Executive
Danfoss
Committee
Nis Jessen, Vice-President, Strategy and Business
Michael Bhler Development, Denmark
Practice Lead, Real Estate Industry President and Chief Executive Officer: Niels Christiansen

The Boston Consulting Group (Advisor and Knowledge Essar Group


Partner) Shiba Panda, Managing Director, Essar Projects, India
Philipp Gerbert Group Chief Executive Officer and Director: Prashant
Senior Partner and Managing Director; Co-Leader, Strategy Ruia
Practice, Europe, and Global Topic Leader, Digital Strategy
Fluor
Santiago Castagnino Mark Brown, Vice-President, Construction &
Partner and Managing Director; Head of Engineered Fabrication, USA
Products and Infrastructure, Western Europe and South Chairman and Chief Executive Officer: David T. Seaton
America
Lixil
Christoph Rothballer
Hanseul Kim, Director, Corporate Initiative Group, Japan
Principal, Infrastructure Expert
President and Chief Executive Officer: Yoshiaki Fujimori

Perot Group
Steering Committee of the Future of Todd Platt, Chief Executive Officer, Hillwood
Investments, USA
Construction Project Chairman of the Board: Henry Ross Perot Jr
Acciona
SAP
Luis Castilla, Chief Executive Officer, Acciona
Michael Shomberg, Global Vice-President, Engineering,
Infrastructure, Spain
Construction and Operations Solutions, Germany
Chairman: Jos Manuel Entrecanales Domecq
Chief Executive Officer: Bill McDermott
Aecon
Siemens
Steve Nackan, President, Aecon Concessions, Canada
Roland Busch, Member of the Managing Board,
Executive Chairman: John M. Beck
Germany
President and Chief Executive Officer: Joe Kaeser
AkzoNobel
Chief Executive Officer and Chairman of the Board of
Skanska
Management: Ton Bchner
Nick Doherty, Executive Vice-President, Sweden
President and Chief Executive Officer: Johan Karlstrm
Amec Foster Wheeler
Charles Mouzannar, President, Construction and
SNC-Lavalin
Specialty Consulting (CSC) Operating Unit, United
President and Chief Executive Officer: Neil Alexander
Kingdom
Bruce
Interim Chief Executive Officer and Chief Financial
Officer: Ian McHoul

6 Shaping the Future of Construction: A Breakthrough in Mindset and Technology


Tarkett Fiona Murie, Global Director, Health and Safety and
Remco Teulings, President, Europe, Middle East and Construction, Building and Wood Workers International
Africa, France (BWI), Switzerland
Chief Executive Officer: Michel Giannuzzi Ibrahim Odeh, Director, Global Leaders in Construction
Management - Research Group, Department of Civil
WS Atkins Engineering and Engineering Mechanics, Columbia
Jeff Herriman, Group Director, Corporate Development, University, USA
United Kingdom
Aristeidis Pantelias, Lecturer and Course Director, MSc
Chief Executive Officer: Uwe Krger
Infrastructure Investment and Finance, The Bartlett School
of Construction & Project Management, University College
Advisory Committee of the Future of London, United Kingdom
Construction Project Robert Prieto, Chairman and Chief Executive Officer,
Strategic Program Management LLC, USA
Victor Chen Chuan, Professor of Engineering Management, Spiro Pollalis, Professor of Design, Technology and
Business School, Sichuan University, Peoples Republic of Management, Harvard Design School; Director, Zofnass
China Program for Infrastructure Sustainability, USA
James Dalton, Chief, Engineering and Construction, U.S. Norbert Pralle, Vice-President, European Network of
Army Corps of Engineers, USA Construction Companies for Research and Development
Juan Elizaga, President, European Network of Construction (ENCORD), Spain
Companies for Research and Development (ENCORD), Aaron B. Schwarz, Principal, Plan A Architecture + Design,
Spain USA
Timothy Geer, Director, Public Sector Partnerships, WWF Douglas Stollery, Stollery Charitable Foundation, USA
International, Switzerland Jan Van Schoonhoven, Senior Advisor, PPP International,
Tiago Guerra, Founder and Managing Partner, TG Ministry of Infrastructure and Environment of the
International Manager, Portugal Netherlands, Netherlands
Shervin Haghsheno, Professor, Department of Civil Enrico Vink, Managing Director, International Federation of
Engineering, Geo- and Environmental Sciences, Karlsruhe Consulting Engineers (FIDIC), Switzerland
Institute of Technology, Germany Edmundo Werna, Senior Specialist, Labour Administration,
Franziska Hasselmann, Director, Studies CAS MIA, Institute Labour Inspection and Occupational Safety and Health
of Accounting, Control and Auditing, University of St Gallen, Branch, Sectoral Policies Department, International Labour
Switzerland Organization (ILO), Geneva
Markus Kraft, Professor, Department of Chemical James X. Zhan, Director, Investment and Enterprise, United
Engineering and Biotechnology, University of Cambridge, Nations Conference on Trade and Development (UNCTAD),
United Kingdom Geneva

Shaping the Future of Construction: A Breakthrough in Mindset and Technology 7


Context and Objectives of the Report

Scope Audience
This report is the first publication of a multi-year project for This report is aimed at all firms active along the construction
guiding and supporting the Engineering & Construction value chain, including suppliers of building materials,
(E&C) industry during its current transformation. The report chemicals and construction equipment; contractors; and
describes the industrys present state, assesses relevant engineering, architecture and planning firms, as well as
global trends and their impact on the industry, and devises project owners and developers. Governments are another
an industry-transformation framework with key areas target audience, as they not only have an impact on the
for development and action. It also features many best industry via regulation but also act as the main procurer of
practices and case studies of innovative approaches or most infrastructure projects. Finally, this report is also aimed
solutions, and offers a view at different levels, such as at at members of academia and civil society, in view of the
the company-, industry- and sector-level of how the future socio-economic importance of the construction industry.
of construction might look. The projects subsequent phases The industry will rely on effective collaboration with all
and reports will deal with specific topics or will explore the stakeholders for its future success.
subject in depth by geographical region.

The project as a whole, and this report specifically, builds


on the findings of an earlier World Economic Forum
project the four-year Strategic Infrastructure Initiative.
That initiative identified and described the key government
measures needed to close the infrastructure gap, by such
means as improving the prioritization of projects, enhancing
public-private partnership (PPP) models, improving the
operations and maintenance (O&M) of existing assets, and
better mitigating risks.1 During that research, it became
evident that important contributions can also be made
from the supply side the E&C industry in the form of
improvements to and innovations in project delivery.

8 Shaping the Future of Construction: A Breakthrough in Mindset and Technology


Executive Summary

The Engineering & Construction (E&C) industry strongly Compared to many other industries, the construction
affects the economy, the environment and society as a industry has traditionally been slow at technological
whole. It touches the daily lives of everyone, as quality of life development. It has undergone no major disruptive
is heavily influenced by the built environment surrounding changes; it has not widely applied advances in processes
people. The construction industry serves almost all other such as lean. As a result, efficiency gains have been
industries, as all economic value creation occurs within or meagre. In the United States over the last 40 years, for
by means of buildings or other constructed assets. As example, labour productivity in the construction industry has
an industry, moreover, it accounts for 6% of global GDP. It actually fallen.
is also the largest global consumer of raw materials, and
constructed objects account for 25-40% of the worlds total Given the sheer size of the E&C industry, even a small
carbon emissions. improvement would provide substantial benefits for
society. To capture such potential, this report presents
Multiple global megatrends are shaping the future of an industry transformation framework (Figure 1) listing 30
construction. Consider just two developments: first, measures, supported by many best practices and case
30% of global greenhouse gas emissions are attributable studies of innovative approaches. Some of the measures
to buildings (at the same time, the UK government can be adopted by private companies on their own, while
has set a target for 2025 of 50% reduction in todays others require collaboration with their peers or with other
level of greenhouse gas emissions in the countrys built companies along the construction value chain. In addition,
environment); second, the population of the worlds urban some of the measures can be adopted by government,
areas is increasing by 200,000 people per day, all of whom acting both as the regulator and as the major owner of
need affordable housing as well as social, transportation infrastructure projects.
and utility infrastructure. Such trends pose challenges but
also offer opportunities; either way, they require an adequate
Figure 1: Industry Transformation Framework
response from the industry as a whole.
Figure 5: Industry Transformation Framework
Figure 1: Industry Transformation Framework

(Future) Best practices

2.1 Technology, materials and tools 2.2 Processes and operations


Advanced building Standardized, (Semi-)automated Front-loaded and Innovative contrac- A common and
and finishing modularized and construction cost-conscious ting models with appropriate frame-
materials prefabricated equipment design and project balanced risk- work for project
components planning sharing management
Company level

New construction Smart and life-cycle- Digital technologies Enhanced manage- Lean and safe con- Rigorous project
technologies, e.g. optimizing and big data along ment of subcontrac- struction manage- monitoring (scope,
3D printing equipment the value chain tors and suppliers ment and operations time, cost)

2.3 Strategy and business model innovation 2.4 People, organization and culture
Differentiated busi- Sustainable Internationalization Strategic workforce Continuous High-performance
ness model and tar- products with strategy planning, smart training and organization,
Actors

geted consolidation optimal life-cycle to increase hiring, enhanced knowledge culture and incentive
and partnerships value scale retention management schemes

3.1 Industry collaboration 3.2 Joint industry marketing


Sector level

Mutual consent on More data ex- Cross-industry Industry-wide Coordinated Effective interaction
standards across change, bench- collaboration along collaboration on communication with with the public
the industry marking and best- the value chain employer marketing civil society sector
practice sharing

4.1 Regulation and policies 4.2 Public procurement


Government

Harmonized building Market openness Promotion and Actively managed Strict implemen- Innovation-friendly
codes/standards to international funding of R&D, and staged project tation of trans- and whole-life-cycle-
and efficient permit firms and technol. adoption pipelines with parency and anti- oriented procure-
processes SMEs and education reliable funding corruption standards ment

Source:Source:
World World
Economic Forum;
Economic Forum;The Boston
Boston Consulting
Consulting Group Group
Shaping the Future of Construction: A Breakthrough in Mindset and Technology 9
WEF-constr-full-edit23-mar16.pptx 0
Substantial improvements are already within To gain the support of society at large, the industry again
reach for companies needs to work collectively, along multiple dimensions. For
example, it should promote itself as an attractive employer,
Companies themselves should spearhead the industry and it should engage local communities by means of
transformation. Tremendous opportunities are available participatory planning and ongoing community-involvement
through the application of new technologies, materials and initiatives during operations. A good example in that regard
tools. New technologies in the digital space, for example, is the Considerate Constructors Scheme, a non-profit,
will not only improve productivity and reduce project delays, independent organization founded by the United Kingdoms
but can also enhance the quality of buildings and improve construction industry to improve its image, share best
safety, working conditions and environmental compatibility.2 practices and strengthen public awareness of the impact of
construction on the environment.7
Building Information Modelling (BIM) plays a central role
here, as it is the key enabler of and facilitator for many other The industry is also very much affected by politics and
technologies: the building of a bridge, for example, can be regulation and thus needs to optimize its interactions with
greatly facilitated by combining robotics and 3D printing via the public sector. Here again, companies should cooperate
a parametrically designed 3D model.3 Another extremely in their efforts, to ensure constructive communication
powerful lever for innovation is that of construction materials; with public agencies, to monitor political developments
the associated solutions are numerous and wide-ranging accurately and to implement an effective advocacy strategy.
from incremental innovation of traditional materials and In the German National Initiative on Energy Transition, for
existing characteristics to radically innovative materials with instance, the construction industry coordinated well with
entirely new capabilities. Although many innovative solutions the German government in developing a strategy on climate
are already being applied on a small scale or in a few change.8
countries, the industry still needs a large-scale application or
better adaptation of current technological developments. As both regulator and major client, the
To unlock the potential inherent in new technologies, government too needs to take action
materials and tools, the industry also needs to adopt the
In any given country, the public sector, and in particular
relevant respective processes. For instance, the benefits of
the national government, can enhance competition and
BIM are reinforced if companies exploit the new ancillary
productivity by simplifying and harmonizing building
opportunities it offers notably, a new way of collaborating
codes and standards. By setting and enforcing time limits
and sharing information between stakeholders. Large
for construction permits and environmental approvals,
productivity improvements can be achieved by optimizing
governments can greatly reduce project delays. Ideally,
existing processes: the broader use of lean principles
governments should also minimize barriers to competition at
and methods, for instance, could reduce completion times
an international level. And they should provide appropriate
by 30% and cut costs by 15%.4 Another core lever is early
support to academia and companies for developing
project planning. To improve such planning, companies
technological innovations in construction. The British
should promptly draw on the knowledge of all stakeholders,
government, for example, recently put the construction
and should explore new contracting models. A minimal
industry on the national agenda, in the hope of eventually
increase in upfront costs of about 2% to support optimized
positioning Britain at the forefront of global construction:
design will lead on average to life-cycle savings of 20% on
among the specific targets to reach, for instance, is a 33%
total costs.5
reduction in both the initial cost of construction and the
whole-life-cycle cost of assets.9
Every change has to be driven and supported by the people
involved, so E&C companies must focus on attracting,
Governments can also shape the industry by their actions
retaining and developing talent, and establishing a company
as key project owners. The Crossrail project in London, for
culture conducive to innovation and improved skills. This
instance, systematically generates, captures and replicates
is all the more necessary as the industry is traditionally
innovative ideas and eventually translates them into practical
regarded as not particularly attractive to new talent and, at
innovations and industry standards. It also aims to raise
the same time, it is in increasing competition for talent with
the bar for other construction projects by making these
other industries. To compound matters, it has an ageing
ideas, technologies and practices available to the industry
workforce.6
as a whole. Finally, the issue of corruption on construction
projects can only be resolved by creating a corruption-
Cross-company collaboration is pivotal resilient procurement environment, by implementing fair and
E&C companies cannot realize their full potential on their transparent procurement procedures, and by establishing
own. The industry is one of the most fragmented in the clear practices regarding the prosecution of corruption
world and relies on a seamless interplay of all participants practices that address both the supply and demand sides of
along the value chain and throughout a projects life cycle. corruption.
Companies need to enhance coordination and cooperation
across the value chain, and jointly define standards and
agree on common goals. Australia is duly pioneering the
standardization of project alliance agreements and is
adopting a model of cooperative partnership to reduce initial
costs.

10 Shaping the Future of Construction: A Breakthrough in Mindset and Technology


1. Introduction: The Construction
Industry Time for a Transformation

1.1 The industry is crucial to society, For countries to enjoy inclusive and sustainable growth,
modern and efficient infrastructure is essential. According
the economy and the environment to a 2014 estimate by the International Monetary Fund, if
advanced economies invested an extra 1% of GDP into
Societal relevance infrastructure construction, they would achieve a 1.5%
Construction is one of the first businesses that humankind increase in GDP after four years.14
developed, and it continues to shape our daily life in unique
ways. Virtually all other businesses rely on the construction Environmental relevance
industry to provide and maintain their accommodation, The construction industry is the single largest global
plants and infrastructure, and construction is a determinant consumer of resources and raw materials. It consumes
of where and how almost everyone lives, works and plays. about 50% of global steel production and, each year, 3
For nearly the entire population of the world, the built billion tonnes of raw materials are used to manufacture
environment heavily influences quality of life. In the United building products worldwide.15
States, for instance, people on average spend nearly 90% of
their time indoors.10 So the building and the materials used About 40% of solid waste in the United States derives from
in its construction and finishing have a major impact on the construction and demolition.16 Throughout the world, such
health and well-being of its occupants.11 waste involves a significant loss of valuable minerals, metals
and organic materials so there is great opportunity to
create closed material loops in a circular economy.17
As for energy use, buildings are responsible for 25-40% of
the global total, thereby contributing hugely to the release of
We shape our buildings and, carbon dioxide.18
afterwards, our buildings
Value therefore lies in improving the quality of construction
shape us. and the quality of materials used, in contributing to a
healthier indoor environment, increasing its sustainability
and reducing its cost. Any endeavour towards this goal will
Winston Churchill, 1944 generate welcome benefits whether for families investing in
their first private home or governments embarking on a giant
infrastructure project.
Economic relevance
With total annual revenues of almost $10 trillion and added
value of $3.6 trillion, the construction industry accounts for
about 6% of global GDP.12 More specifically, it accounts
for about 5% of total GDP in developed countries, while
in developing countries it tends to account for more than
8% of GDP. The industry is expected to grow greatly in the
coming years, to estimated revenues of $15 trillion by 2025.
More than 100 million people are already employed today in
construction worldwide.13

Construction is a horizontal industry (like the Financial


Services industry), serving all industry verticals; in other
words, construction has considerable interaction with
numerous other sectors, since value creation almost always
occurs within or by means of buildings or other constructed
assets. To mention a few, residential housing accounts for
38% of global construction volume; transport, energy and
water infrastructure for 32%; institutional and commercial
buildings for 18%; and industrial sites (from cement to
automotive manufacturing) for 13%.
Shaping the Future of Construction: A Breakthrough in Mindset and Technology 11
1.2 The industrys future will be markets, such as the United Kingdoms, are characterized
by a high degree of fragmentation, which impacts
shaped by a number of megatrends unfavourably on their level of innovation and their ability to
access foreign markets. Eventually, the firms with strong
The construction industry is affected by megatrends in
processes in place and the ability to adapt their business
four domains: markets and customers, sustainability and
models to new markets will prove to be the winners. Many
resilience, society and workforce, and politics and regulation
of the others will disappear.
(see Figure 2). The industry needs to identify and implement
optimal responses to these megatrends both with respect
One particularly challenging area is that of infrastructure.
to the opportunities they offer and with respect to the
Ageing infrastructure assets in developed countries demand
challenges they pose.
proper maintenance, upgrading, replacing or newly built
assets, and there is, of course, a fast-growing societal
Market and customer trends need for infrastructure assets in emerging markets. So
As demand in emerging countries rises, the industry must overall, there is immense opportunity, and responsibility,
identify how emerging and developing markets can benefit for the construction industry. The vast infrastructure gap
best from the technological advances and increased safety cannot be bridged by public-sector money alone. Private
standards already being applied in developed countries, capital is needed, so the trend in infrastructure construction
while still taking into account local market conditions. projects is for PPPs. One other notable development is the
increasing number of infrastructure megaprojects; these
The expected increase in global competition will produce projects, however, have a poor record historically in terms of
winners and losers as strengths and strategies differ on-time and on-budget delivery, environmental footprint and
between companies and countries. Many Asian construction public support.19
firms capitalize on their cost advantages and put great effort
into securing construction contracts abroad. Most Western

Figure 2: Megatrends Shaping the Construction Industry's Future


Figure 2: Megatrends Shaping the Construction Industrys Future

Market and Sustainability Society and Politics and


customers and resilience workforce regulation
Demand in developing countries Resource scarcity Urbanization and housing crisis Complex regulatory requirements
of the next decades consumer of global people are added different procedures are
65% growth in construction No. 1
raw materials is the 200k daily to urban areas 25 required for a typical
will happen in emerging construction industry and need affordable and warehouse construction permit
countries healthy housing in India

Globalized markets Sustainability requirements Health/comfort needs of citizens Stricter HSE and labour laws
E&C companies of the solid waste in higher than outside of the workforce in a
1 in 2 plan to move into 50% the United States is 2-5 are the levels of 10% public project in
new geographies produced by the construction volatile organic compounds California had to come from the
industry found inside US homes otherwise unemployable

Bigger, more complex projects Energy and climate change Talent and ageing workforce Slow permit and approval
process
123km 30%
of global greenhouse
50%
of general contractors
$1.2tn
(76 miles) is the of infrastructure
length of the gas emissions are are concerned about could be added
Undersea tunnel that will attributable to buildings finding experienced crafts by 2030 if all countries
connect Dalian and Yantai in workers for their workforce committed to specific time limits
China for approvals

Ageing infrastructure Resilience challenges Stakeholder pressure and Geopolitical uncertainty


organization
Turkish construction
1 in 3 bridges are more 3 reported last year as in 67k collected opposing the 18
German railway as many disasters were signatures were
workers were kidnapped
than 100 years old 1980 by militants in Baghdad in
construction of the Stuttgart
train station September 2015
Massive financing need Cyberthreats Politicization of construction Corruption
decisions
annual investments of firms agree that of survey respondents
$1tn are needed to close 90% information controls In 2011 the Portuguese
government 49% believe corruption is
the global infrastructure gap have an impact on front-line cancelled a 165km (103 mile) common in a Western
employees high-speed train line project as European construction market
an austerity measure

Source: Press reports; World


Source: Press Economic
reports; Forum;
World Economic The
Forum; Boston
Boston Consulting
Consulting Group Group

WEF-constr-full-edit23-mar16.pptx 1

12 Shaping the Future of Construction: A Breakthrough in Mindset and Technology


Sustainability and resilience trends less glamorous than other sectors will struggle to recruit
the requisite digital talent.23
Increasingly, sustainability is becoming a requirement
rather than just a desirable characteristic, and its pursuit The construction industry is concerned with the health
is bound to affect both the construction process and the and safety not only of workers but also of the people
built asset itself. The construction sector produces an who actually live or work in the buildings. Employee
enormous amount of waste, so the more efficient use and health and productivity are linked to the quality of the
recycling of raw materials, even a small improvement, offer indoor environment, and that quality is largely determined
huge potential benefits. Other new priorities are emerging by decisions made during project development and
accordingly, including optimizing space, for example, and construction. The construction sectors responsibility does
ensuring more efficient methods of heating, cooling and not end with the delivery of the project: the entire operations
lighting. The industry is increasingly making use of off-grid or or use phase is affected by the initial selection of materials.
distributed power sources, such as wind power, geothermal The safer the materials, the better for health and the
energy and solar panels on roofs. environment. For instance, asbestos has been outlawed in
many countries as a construction material, and construction
The industry also has to address the growing concerns companies are increasingly motivated to ensure that the
over natural hazards (notably, flooding, hurricanes and living and work environments that they create are ergonomic
earthquakes), and to enhance resilience. So new emphasis and allergy-free. In addition, at the end of the buildings life,
is being placed on devising risk-mitigating solutions, safer materials can be more easily integrated in the circular
especially in urban areas with high population density. economy.
Finally, the industry must engage against the growing
threats to cybersecurity. No doubt many important benefits A further challenge facing the construction industry
will emerge from the convergence of Web, cloud and concerns the rights or needs of local communities.
mobile platforms, as well as the Internet of Things (IoT), but Neighbourhood lobby groups, for instance, often influence
vulnerability will increase, too particularly in an industry permit decisions and might even be able to force the
as decentralized as the construction industry, with so withdrawal of permits already granted. Communities are also
many different stakeholders involved. So the imperative to becoming more organized and professional, partly thanks to
protect the industry from threats without disrupting business new forms of communication and social media.
innovation and growth has never been greater.20
Political and regulatory trends
Societal and workforce trends
The various political challenges relate to regulation,
The worlds urban population is expected to exceed 6 billion bureaucracy, instability and corruption.
by 2045, with about a quarter of that population living in
slums if the current proportion remains unchanged.21 Hence Regulation impacts on many aspects of the E&C industry.
the need for a boost in affordable housing in urban areas In a recent global survey, regulation was identified as
where the construction process is very complex, owing the most important driver of increasing complexity.24
to the space constraints and for increased infrastructure The industry is especially affected by changes in health
spending on water supply, sanitation, and so on. and safety requirements, financial and labour legislation,
Another demographic trend, especially in developed and environmental standards. New regulations in any of
countries, is the shifting age profile. The increasing these areas can affect business operations adversely. If
proportion of elderly people in the population affects the designed thoughtfully, however, regulation can actually
construction industry in two main ways: first, it creates a prove advantageous to companies.25 For instance, retrofit
need to construct or adapt buildings to accommodate investments in response to Germanys new Energy
ageing and convalescent citizens; second, it threatens to Conservation Ordinance have been a major driver of
reduce the available supply of construction workers. That innovation for the construction industry.26 Going even
threat might seem less serious than in the past, since new further, one could think of regulation not as imposing a
technologies are now taking over many of the tasks that burden but as offering opportunities to stimulate an industry
formerly required low-skilled workers.22 However, the new transformation and inspire innovations that would greatly
technologies themselves require a highly skilled workforce, benefit society and the environment.
and the construction industry traditionally perceived as

Shaping the Future of Construction: A Breakthrough in Mindset and Technology 13


Next is the issue of bureaucracy and political risk. Finally, the challenge of corruption must be addressed. In
Construction permits are, quite rightly, more and more many countries, corruption remains one of the greatest
subject to environmental and social-impact studies. If barriers to economic and social development. Although
these studies are conducted inefficiently, however, or bribery and other forms of corruption afflict almost every
if there is a backlog in the granting of permits, projects industry sector, they are a particular concern for companies
are needlessly delayed and their prospects suffer: cash in the E&C and Real Estate sectors, given the nature of their
flows start later than anticipated, thereby compromising business.
profitability. An appropriate balance is required: on the one
hand, offering speedy approval processes; on the other, 1.3 The industry must also confront
giving all stakeholders their due say. Even after the permits
are granted, infrastructure projects remain vulnerable to internal challenges
cancellation, owing to the vagaries of national or local
politics. Frequently, a new government will set different In most countries, over the past 50 years, productivity
priorities from those of its predecessor.27 improvements in construction have been meagre, especially
when compared to those in other industries (see Figure 3
Another constant issue is that of political instability. The for the respective historical trends in labour productivity in
international community has arguably managed to reduce the United States). Some new technologies and tools have
overall levels of violence in recent decades, but regional emerged, but the rate of innovation and innovation adoption
hotspots obviously persist and new ones flare up, at has been very slow.
enormous human and economic cost. Contractors are Why does the industry have such an unimpressive record?
wary of getting involved in such locations, even in post- The underlying causes are many and varied.
crisis conditions especially in long-term infrastructure
programmes, where predictability is key and need to find Lack of innovation and delayed adoption. The lifeblood
ways of mitigating the risks. of any industry is research and development (R&D). The
benefits of R&D, however, are long term, whereas the
costs arise in the present. This mismatch is ill-suited to
the project-driven business in which the construction
industry operates, so R&D has received less attention
here than in other industries.29

14 Shaping the Future of Construction: A Breakthrough in Mindset and Technology


Informal processes or insufficient rigour and consistency and key suppliers at different stages of the project.
in process execution. The processes typically adopted This set-up militates against sophisticated construction
by construction companies regularly lack maturity. planning. Ideally, the knowledge of all stakeholders
Companies often seem to put greater emphasis on along the value chain should be fully exploited early on
defining the final product than on planning the actual in the design and planning process, but that is seldom
construction process. easy or even possible under current arrangements.
Insufficient knowledge transfer from project to project. Little collaboration with suppliers. For many large
Although each construction project will have its own contractors, the purchasing strategy involves long-term
unique characteristics, the processes of construction relationships with key suppliers; nevertheless, the final
itself are repeated in their essentials from project decisions are often still made ad hoc, on a project-
to project. Lessons learned from one project could to-project basis. The problem is even more severe in
therefore often be usefully applied to subsequent smaller construction companies, where purchasing is
projects. Yet few companies have institutionalized such almost exclusively project-based.
a process. Past experience is therefore often lost, and Conservative company culture. The construction
projects continue to rely heavily on the expertise of the industry operates in a somewhat traditional environment
individual project manager. and generally retains a conservative corporate culture.
Weak project monitoring. A related issue is the weak The widespread perception is, justifiably enough, that
monitoring of projects, relative to other industries. In construction companies are not sufficiently progressive
many manufacturing industries, for example, operations or forward-thinking.
are continuously tracked and large quantities of data Shortage of young talent and people development. The
are collected. In that way, if something goes wrong, a image that people have of the construction industry as
car manufacturer, for instance, can quickly identify the an employer is a relatively poor one, with inadequate
root causes and implement remedies immediately and gender diversity and little job security (owing to the
efficiently. Few construction companies are set up in cyclical nature of the business). As a result, E&C
this way. companies often struggle to attract talented recruits
Little cross-functional cooperation. The conventional to their workforce. Relative to companies in other
construction process is generally sequential, reflecting industries, construction companies engage less often
the input of the project owner, designers, constructors and less effectively in internal people-development
initiatives.

Figure 3: US Industry
FigureProductivity and Performance,
3: US Industry Productivity 1964-201
and Performance,
1964-201228
Looking at construction projects Index of US labour productivity1
today, I do not see much 300
Relative
difference in the execution of the improvement

work in comparison to 50 years 250 Non-farm business


+153%
labour productivity
ago. CAGR +1.9%
200

John M. Beck, Executive Chairman, Aecon Group, Canada 150

100
-19%
CAGR -0.4%
50
Construction
labour productivity

0
1968
1972
1976
1980

1988
1992
1996
2000

2008
2012
1964

1984

2004

1 Peer set based on US companies with Engineering, Construction and Services-related


Standard Industrial Classification codes. Financials are inflation-adjusted and indexed to
1
Peer set based on US companies with Engineering, Construction and
1964; output per working hours.
Services-related Standard
CAGR = compound Industrial
average growth rate Classification codes. Financials are
Source: Global Vantage; Compustat; Bloomberg; www.aecbytes.com/viewpoint/2013/
inflation-adjusted and indexed to 1964;S&P
issue_67.html; www.nber.org/papers/w1555.pdf; output
Capital per working
IQ; BCG hours.
ValueScience
Center; World Economic Forum
CAGR = compound average growth rate
Source: Global Vantage; Compustat; Bloomberg; www.aecbytes.com/
WEF-constr-full-edit23-mar16.pptx
viewpoint/2013/issue_67.html; www.nber.org/papers/w1555.pdf; S&P
Capital IQ; BCG ValueScience Center; World Economic Forum

Shaping the Future of Construction: A Breakthrough in Mindset and Technology 15


In fairness, the construction industry does have some Given the construction industrys societal, environmental
inherent characteristics that make it a structurally difficult and economic importance, even small improvements in
business and that hinder attempts at reform. It also performance will have a strong effect in all three domains:
represents just one step out of several in the value chain,
and relies on a large number of stakeholders. So the much- Societal. A mere 1% reduction in construction costs
needed company and industry transformation is bound to would save society about $100 billion annually30 a sum
be difficult. Figure 4 lists these unconducive characteristics equal to the entire global cost of cancer drugs. In fact,
the ambitions go far beyond that: the vision formulated
in two categories: on the left, some of the industrys main
by the UK government for 2025 is of a 33% reduction
peculiarities; on the right, the specific issues resulting from in the initial cost of construction and the whole-life-cycle
the special role of its clients. costs of built assets.31
Economic. The global shortfall in infrastructure capacity
1.4 The industry is ripe for and is expected to reach $15-20 trillion by 2030. Closing
capable of transformation this gap could create up to 100 million additional jobs
and generate $6 trillion a year in economic activity in the
long run.32 Up to 30% of this boost could come from
improvements to construction projects and to asset
operations.
Clients do not want to be guinea Environmental. By harnessing the capacity of the
pigs. building sector, many countries can cut emission rates
cost-effectively and achieve energy savings of more
than 30%, according to the United Nations Environment
Programme.33 The target set by the United Kingdoms
Roger Smith, Executive Director, Corporate Strategy, Fluor Corporation,
USA
construction industry for 2025 is a full 50% reduction of
todays level of greenhouse gas emissions in the overall
built environment.34

Figure 4: Unique Construction Environment


Figure 4: Unique Construction Environment

The industry has and operates in a complex


unique characteristics client context

Multiple stakeholders with diverse interests/needs Immature project definition and technical assessment
Three different project owners are involved in the construction Construction costs of the Hamburg Elbphilharmonie increased
of the Berlin airport. Delays of 10 years and cost overruns of from 241M to 789M. Almost all the extra cost resulted from
about 5 billion are expected. planning that was insufficiently progressed at tendering time.

Project business and on-site construction Over-preference for lowest price bid
According to the corporate strategy director of a major global The launch of a 17km (11 mile) highway segment in Germany
E&C firm: was delayed by six months, as one bidder raised objections to
Our product output is in the unit of 1. the tendering process the lowest bid had not been chosen.

High industry fragmentation Insufficient or incremental funding


The United States has 710,000 E&C companies; only 2% of Unique Many US government contracts have an Availability of Funds
them have more than 100 workers and 80% have just 10 construction clause that limits the governments liability to pay the full
workers or fewer. environment amount claimed.

Low profitability and capitalization Conservative clients


Global listed E&C companies have a weighted average total A minor problem with an innovative rapid-hardening concrete
shareholder return of only 5% and are consistently during a night shift almost brought a public road project to a
outperformed by most S&P 500 companies. halt, as the project owner lost faith in the new material.

Highly cyclical and volatile business Increased risk transfer to contractors


The Spanish construction market declined from a peak Emerging-market infrastructure investments with private parti-
of 151 billion in 2006 to just 70 billion in 2012, and has still cipation, which often involve a transfer of risk to contractors,
not fully recovered. have tripled since 1995 and totalled $108 billion in 2014.

Unstable workforce Complexity of contracts and dispute resolution


In Canada, about 25% of workers whose construction jobs 25 years ago, a typical contract consisted of about 50 pages;
are terminated find their next job in sectors outside today it can easily exceed 1,000 pages and is packed with
construction. legal complexities.
Source: World Economic Forum; BCG analysis

Source: World Economic Forum; The Boston Consulting Group


Source: World Economic Forum; The Boston Consulting Group
WEF-constr-full-edit23-mar16_edited-AR_FST.pptx 0

16 Shaping the Future of Construction: A Breakthrough in Mindset and Technology


All of this significant potential is ready to be unlocked. New The framework structures the various areas of action
opportunities are emerging as transformative developments according to responsibility. Initially, the transformation
reshape the E&C industry from innovative technologies relies on the initiatives of individual companies the
to revolutionary construction techniques. Productivity and adoption of new technologies and processes, business-
efficiency will surge. It is up to the industry to embrace these model innovation, refinements to the corporate culture and
new opportunities more vigorously and change the way it organization, and so on. Individual action is not enough,
has traditionally operated. however, in such a highly fragmented and horizontal
industry: many of the challenges need to be tackled
Other industries, such as the automotive industry, have collectively the industry as a whole has a responsibility. It
already undergone radical and disruptive changes, and their needs to establish new forms of collaboration, or to improve
digital transformation is now well under way. Construction existing forms. Finally, governments, too, have a large part
companies need to act quickly and decisively: lucrative to play, in their dual role as regulators and clients.
rewards await nimble companies, while the risks are serious
for hesitant companies.35 Given all the megatrends and The following sections discuss the steps all those involved
internal challenges, the construction industry should take must take.
action in several areas. A comprehensive approach is
outlined in the industry transformation framework shown in
Figure 5.

Figure 1: Industry Transformation Framework


Figure 5: Industry Transformation Framework
Figure 5: Industry Transformation Framework

(Future) Best practices

2.1 Technology, materials and tools 2.2 Processes and operations


Advanced building Standardized, (Semi-)automated Front-loaded and Innovative contrac- A common and
and finishing modularized and construction cost-conscious ting models with appropriate frame-
materials prefabricated equipment design and project balanced risk- work for project
components planning sharing management
Company level

New construction Smart and life-cycle- Digital technologies Enhanced manage- Lean and safe con- Rigorous project
technologies, e.g. optimizing and big data along ment of subcontrac- struction manage- monitoring (scope,
3D printing equipment the value chain tors and suppliers ment and operations time, cost)

2.3 Strategy and business model innovation 2.4 People, organization and culture
Differentiated busi- Sustainable Internationalization Strategic workforce Continuous High-performance
ness model and tar- products with strategy planning, smart training and organization,
Actors

geted consolidation optimal life-cycle to increase hiring, enhanced knowledge culture and incentive
and partnerships value scale retention management schemes

3.1 Industry collaboration 3.2 Joint industry marketing


Sector level

Mutual consent on More data ex- Cross-industry Industry-wide Coordinated Effective interaction
standards across change, bench- collaboration along collaboration on communication with with the public
the industry marking and best- the value chain employer marketing civil society sector
practice sharing

4.1 Regulation and policies 4.2 Public procurement


Government

Harmonized building Market openness Promotion and Actively managed Strict implemen- Innovation-friendly
codes/standards to international funding of R&D, and staged project tation of trans- and whole-life-cycle-
and efficient permit firms and technol. adoption pipelines with parency and anti- oriented procure-
processes SMEs and education reliable funding corruption standards ment

Source: World Economic Forum; The Boston Consulting Group


Source: World Economic Forum; Boston Consulting Group
WEF-constr-full-edit23-mar16.pptx 0

Shaping the Future of Construction: A Breakthrough in Mindset and Technology 17


2. Companies as the Spearhead of
Transformation

2.1 Technology, materials and tools The solutions emerging from the building material
industry are numerous and wide-ranging from the
Advanced building and finishing materials incremental innovation of traditional materials and
existing characteristics, to the generation of new material
Materials constitute an extremely powerful lever for combinations with additional multifunctional characteristics,
innovation. The European Commission estimates that 70% to radically innovative materials with entirely new
of product innovation across all industries is derived from functionalities. A few examples appear in Figure 6.
new or improved materials. With approximately one-third
of construction cost attributed to building materials, the
scope for applying advanced building materials (ABMs) is
considerable.36
gureFigure
6: Examples of Advanced Building and Finishing Materials
6: Examples of Advanced Building and Finishing Materials

Incremental innovation Radical innovation

Advances on traditional materials New material combinations Innovative materials with entirely
and existing characteristics and multi-functional characteristics new functionality

iQ Natural, an advanced vinyl Lixils super-lightweight ceramic Rain-absorbing roof-mats, imitating


flooring, is 100% recyclable, using a sidings combine fast-hardening the process of perspiration,
bio-based plasticizer. The product cement with organic fibre to meet the considerably reduce air-
has TVOC1 values 100 times below required performance at half the conditioning costs
the strictest European standards. weight

Neopor is an enhanced styropor, Self-healing concrete, generated Micronal, a micro-encapsulated


offering up to 20% efficiency through the addition of bacterial phase-change material incorporated
improvement in insulation spores, is estimated to reduce into building materials, enables
lifetime costs by up to 50% intelligent temperature
management

ArcelorMittal has launched Concrete admixed with special Slippery liquid-infused porous
organically coated steel that achieves construction chemicals achieves surfaces constitute super-repellent
30-year guaranteed durability and 50% faster curing times surfaces inspired by the carnivorous
does not contain genotoxic, nepenthes pitcher plant
hexavalent chromium

Higher recyclability/reusability Reduced material costs Higher energy efficiency Early development/pilot phase2

Reduced life-cycle costs Faster construction process Improved health/well-being Market-ready2

1 Total
volatile organic compound
2 Shading of the symbols indicates technology maturity (market-ready versus early development/pilot phase)

Source: World Economic Forum; Boston Consulting Group


Total volatile organic compound
Shading of the symbols indicates technology maturity (market-ready versus early development/pilot phase)
Source: World Economic Forum; The Boston Consulting Group
F-constr-full-edit23-mar16.pptx 4

18 Shaping the Future of Construction: A Breakthrough in Mindset and Technology


A large variety of innovative ABMs are market-ready or a project basis. For optimal innovation and better uptake
close-to-market. Yet despite their great potential, they of ABMs, whats needed is a concerted effort on the part
very often fail to penetrate the market, let alone achieve of the industry as a whole for instance, via industry-wide
widespread acceptance. That is particularly true for standards and certifications (see section 3.1) as well as
emerging countries. One reason is that ABMs often require an active role by governments, in establishing innovation-
a higher initial investment, with the benefits generally friendly policies and procurement processes (see section
realized over the entire life cycle. Other reasons are that the 4). Proper risk sharing is crucial in this context. (See section
new materials still lack a track record of success, and that 2.2 for a discussion of innovative contracting models with
project owners and E&C company decision-makers may improved risk sharing.)
not be up-to-date on the latest developments, or may lack
the information needed for making difficult trade-offs (on Standardized, modularized or prefabricated
such issues as price vs quality, durability and ecological components
merit). All of that points to another serious impediment
to the introduction of new materials: the liability risks that Productivity in construction could receive a substantial boost
engineers, contractors and suppliers would face if they from standardization, modularization and prefabrication.
recommend a new material.37 To remedy this unsatisfactory The standardization of components brings many benefits,
state of affairs, it is crucial for stakeholders along the value including a reduction in construction costs, fewer interface
chain to take action. and tolerance problems, greater certainty over outcomes,
reduced maintenance costs for end-users, and more
E&C companies should build up relevant competencies scope for recycling. Modularization adds to the advantages
in-house, and create a database of evidence on the of standardization, by increasing the possibilities for
applicability and benefits of ABMs, to be able to provide customization and flexibility, and helping to realize the
clients with a convincing quantitative case for using potential of prefabrication in a factory-like environment.
ABMs. Afterwards, contractors should institutionalize the Prefabrication would increase construction efficiency,
knowledge transfer to local project teams, so the decision- enable better sequencing in the construction process
makers at a project level have all the relevant up-to-date and reduce weather-related holdups; by such means, it
information and can thereby optimize their decisions on becomes possible to reduce a projects delivery times
materials. and construction costs relative to traditional construction
methods, and also to create safer working environments.38
EXAMPLE: Fluor has built up an internal team of experts Prefabrication can be applied in a wide variety of project
on concrete to advise the client at an early planning stage, types, ranging from residential housing to large-scale
to develop a foundation of data based on experience and industrial plants. The various systems can be distinguished
to create a convincing business case for greater use of by their degree of prefabrication: at the simpler end are
innovations (such as 50%-faster-curing concrete) in the the mostly two-dimensional building components, such as
market. walls, ceilings or truss elements; then there are modular
structures, comprising larger volumetric elements like entire
EXAMPLE: The United States Army Corps of Engineers rooms or storeys; and, finally, there are entirely prefabricated
(USACE) validates new technologies (such as cross- assets. The degree of prefabrication is based not just on
laminated timber), whether in its own research labs, in these physical dimensions, but on a further factor as well:
demonstration projects or in collaboration with academia. the integration and complexity of mechanical, electrical and
Once a new technology has met USACE requirements, its plumbing systems.
value can be communicated internally in multiple ways to
ensure broad awareness. Additionally, when appropriate, How widely and to what degree prefabrication is accepted
such technologies can be specifically incorporated into in the construction industry depends on the segment and
design guides or specifications. country. Prefabrication is very common in offshore oil and
gas facilities, for instance, and in residential projects in
It is also essential to inform and convince architects, Scandinavia, whereas it has made little headway in the
engineers and clients of the advantages of ABMs. For residential market in Germany. It is used very widely in the
instance, by showing how ABMs, despite their price construction of prisons, and is becoming more important in
premium, have an improved total-cost-of-ownership (TCO) transportation infrastructure, such as bridges and elevated
performance relative to traditional materials, the industry highways.39 Among the typical obstacles to its acceptance
can win risk-averse clients who would normally favour the are:
lowest-price options.
Poor image, due to misconceptions about quality, price
EXAMPLE: BASF and Arup have jointly developed an app and the potential for individualization
for architects, engineers and project owners to calculate Client demand for individual solutions, which
the energy savings achievable from the latent-heat storage discourages the use of standardized processes and
system Micronal. components
Limited experience of the application of prefabrication
Given the multiple-stakeholder nature of construction in high-rise projects, for instance
projects, it is essential to improve collaboration and
knowledge transfer among contractors, subcontractors
and building material suppliers both strategically and on

Shaping the Future of Construction: A Breakthrough in Mindset and Technology 19


The increased risk involved in committing to particular Introduce an economic and logistical assessment
off-site suppliers, especially since the market is not of these technologies in the planning process and
yet well developed and alternatives are not instantly tailor on-site construction processes to the use of
available prefabrication components or modular systems; work of
Underutilization of the prefabrication factory space, due this kind can help greatly in realizing the full productivity
to the customized and irregular nature of construction potential of prefabrication
demand EXAMPLE: Broad Group China, in cooperation with
The high cost of transportation, especially in cases ArcelorMittal, is using a system of modular building
where the distance between the factory and site is large components that enables very speedy construction: a
or where the transport links are inadequate, as well as 57-storey building was built in only 19 days by moving
community opposition to the transportation of oversized 90% of the construction work to the factory.40
components Collaborate with customers and educate them on
Problems in handling large prefabricated components in the advantages of prefabrication; take into account
space-constrained construction sites the opportunities for repurposing or post-installation
adjustments, to meet societys future needs
Technical specifications from project owners: in
Spain, for example, public projects forbid the use of EXAMPLE: MQ Real Estate developed, in collaboration
prefabricated bridge foundations with hotel operators, a scalable modular apartment
system that enables firms to build non-permanent
housing or hotels within weeks in dense urban areas,
Various mitigation strategies are available. The increased risk
to cope with seasonal peaks in demand and exploit
involved in committing to a particular supplier, for instance,
temporarily vacant areas much more efficiently
could be mitigated by developing industry-wide standards
on component dimensions or connections, and so on. Apply new construction concepts
Additional steps that individual companies along the value EXAMPLE: Skanska has developed a new construction
chain should take include: concept known as Flying Factories, which are
temporary factories set up close to construction sites;
Further develop modular construction systems, working they apply lean manufacturing techniques and employ
jointly with suppliers to improve applicability, for local semi-skilled labour. The advantages include a
instance, and generate systems to meet the demand for reduction in construction time of up to 65%, a halving
affordable high-density housing in urban areas of labour costs and a 44% improvement in productivity
EXAMPLE: Fluor has applied modular concepts from relative to on-site assembly, while still upholding the
offshore construction to onshore projects such as construction industrys importance as a local employer.
chemical plants, and has thereby achieved capital-
expenditure reductions of 20-40%. In collaboration with
the supplier, it has included cable harness in its modular
systems, resulting in further productivity improvements.

20 Shaping the Future of Construction: A Breakthrough in Mindset and Technology


(Semi-)automated construction equipment (Semi-)automated equipment offers great potential along
multiple dimensions reduced construction costs, thanks
As more and more processes in the construction industry to shorter delivery time and increased productivity; higher
are mechanized, machinery has acquired a central role quality, due to higher accuracy and fewer workmanship
and has proved to be a strong driver of productivity gains. errors; improved safety, by keeping workers out of danger
Excavators and bulldozers make it quick and easy to move zones, and so on.
large amounts of earth; drilling rigs and piledrivers facilitate
underground engineering; conveyers and pumps optimize Companies along the value chain can take several steps to
concreting work; and mobile cranes lift and position heavy increase the use of automation where beneficial:
loads.
Leverage new technologies by integrating physical and
But while other industrial sectors, such as the automotive digital systems
industry, have already reached the tipping point to Industry
4.0,41 the construction industry still has generally low levels EXAMPLE: Komatsu, a Japanese manufacturer of
of automation. That looks set to change, however, as construction equipment, is developing automated
technological advances in robotics, for instance open bulldozers incorporating various digital systems. Drones,
up enormous new possibilities. New technologies in the 3D scanners and stereo cameras gather terrain data,
digital space (such as unmanned aerial vehicles, low-cost which is then transmitted to the bulldozers; these are
sensors, remote operations and autonomous control equipped with intelligent machine-control systems
systems) could become significant enablers of innovation that enable them to carry out their work autonomously
in construction equipment.42 Semi-autonomous equipment and thereby speed up the pre-foundation work on
is capable of carrying out complex tasks, though it still construction sites, while human operators monitor the
requires considerable human controlling. Autonomous process. On mining sites, autonomous haul trucks are
equipment makes use of sophisticated digital tools and already in common use.
new technologies such as out-of-sight drones, leaving only
monitoring roles for the human worker.

Figure 7:7:New
Figure Deployment
New Deployment ModelsEquipment
Models for Construction for Construction Equipment 43

Volvo Construction Equipment


Improve Continuous monitoring and has launched a programme
preventive maintenance and based on a machine-tracking
availability information system that aims to
repair of construction equipment
of individual result in better availability of identify problems before they
equipment individual equipment occur, improving equipment
uptime

Central fleet management Teletrac provides GPS fleet-


Enhance systems and the tracking of tracking software with a real-
vehicle use increase the time view and analytics,
utilization of utilization of equipment resulting in reduced fuel
a companys across the firm, e.g. by consumption of up to 30%
entire fleet identifying ways to save fuel for instance, by avoiding
costs unauthorized vehicle use

Various forms of equipment


leasing and sharing help to A large construction equipment
manufacturer has invested in
distribute capacity more
Use equipment the start-up Yard Club, which
efficiently across the industry,
helps owners of heavy
better across e.g.
equipment to rent out idle
companies traditional leasing
machines to other businesses,
power by the hour
thereby reducing the cost of
pay by intensity
owning equipment
B2B sharing platforms

Source: World Economic Forum; The Boston Consulting Group


Source: World Economic Forum; Boston Consulting Group

Shaping the Future of Construction: A Breakthrough in Mindset and Technology 21

WEF-constr-full-edit23-mar16.pptx 5
Create preconditions for automation early as early Many companies are optimistic in this regard and point to
as the design and project planning phase. That can other industries, such as aviation, where mass production
be done by increasing the proportion of prefabrication of 3D-printed components is already common practice.
and modular systems, since automation works best The following are some examples of pilot schemes within
with standardized components and processes. Better the construction industry itself, with steel and concrete
upfront planning and technical preparation in setting up components now being 3D-printed for purposes ranging
construction sites is also needed. from bridges to complete homes:
Establish industry standards for communication
protocols, for instance so that automated and EXAMPLE: In a project on 3D-printed steel components,
interoperable equipment can be applied widely to Arup achieved a 75% weight reduction and 40% reduction
overcome the fragmented and multistakeholder nature in materials compared with traditional production methods
of construction processes
EXAMPLE: The Skanska 3D Concrete Printing project aims
Make better use of existing equipment for example, by
to demonstrate that 3D printing can be used to manufacture
adopting new business models (as described in Figure 7)
concrete objects in shapes that were unfeasible through
traditional casting methods.
New construction technologies
EXAMPLE: MX3D, a Dutch start-up working with partners
The development of 3D printing is expected to have such as ArcelorMittal, ABB and Autodesk, has developed an
a disruptive impact on the construction industry. The external sixaxis 3D printing robot capable of printing lines in
technology enables the production of purpose-built shapes mid-air, and has used it to print a footbridge across an canal
that cannot be produced by any other method; it promises in Amsterdam.
productivity gains of up to 80% for some applications,
together with an important reduction in waste. Construction EXAMPLE: WinSun (China) has been building 10 houses
time for some buildings could shrink from weeks to hours, a day by using 3D-printed building components, and has
and customized components could be provided at much concluded a deal with the Egyptian government for 20,000
lower cost. single-storey dwellings leveraging this technology.44
Few other new construction technologies look capable
However, 3D printing in the construction industry is still of making a comparable impact, but structural bonding
at an early stage of development. Several issues persist, is worth mentioning. It offers certain advantages over
including resolution problems (large-scale printing often conventional welding, such as greater design freedom, a
produces rough, chunky results), a trade-off between scale more uniform stress distribution and lower heat input; so
and speed (big printing remains slow standard 3D printers far, however, its applications in construction are limited,
are constrained by their size), and high costs. At present, owing to ongoing concerns about structural integrity and
3D printing is still mostly applicable to low-volume, high- fire safety. One other new construction technology has
value parts. It remains to be seen how quickly companies considerable potential: instead of constructing immoveable
will overcome the main technological challenges, and concrete buildings, companies could create lightweight
whether they will be able to bring down costs and achieve block-like structures that can be relocated.
economies of scale.
EXAMPLE: An army of robot-crane hybrids (called
crabots) will be assembled to build Googles new
headquarters in California. They will lift prefabricated
components such as walls and heavy furniture into place
beneath vast glass canopies.45

22 Shaping the Future of Construction: A Breakthrough in Mindset and Technology


Smart and life-cycle-optimizing equipment technologies across all sectors to create an environmentally
sustainable, economically viable and liveable city.
The concept of smart building is gaining in popularity. This
is in part due to technological advances, which are driving A number of issues persist, however, which restrict
down the cost of sensors, data storage and computing the uptake of these smart technologies: the lack of a
services. At the same time, potential customers are showing TCO perspective, a shortage of city-related information
increased interest, attracted by the widening adoption of technology (IT) standards, heterogeneous starting points
connected devices, and are demanding greater energy and low-quality legacy infrastructure, concerns about
efficiency in buildings and improved safety and convenience. privacy and data protection, and so on. Until uptake
As for the owners or end-users of buildings, they stand to increases, the industry as a whole cannot hope to reap
gain several benefits: reduced operating costs, through a the full benefits. Various initiatives could help to increase
likely 20-40% reduction in energy usage; greater comfort, the uptake: for example, building up the relevant internal
thanks to improved lighting and temperature controls, for capacities; improving collaboration along the value chain;
instance; and increased operational efficiency, partly by convincing customers of the long-term advantages of
means of remote servicing. adopting smart equipment; and, if necessary, persuading
governments and other project owners to take the initiative.
This development affects all built assets and sectors. A sensible first step would be to conduct pilot schemes with
In the Energy sector, for instance, smart meters and selected clients, and thereby gain practical experience.
demand response are emerging.46 In Transportation, smart
technology enables smart transport and parking. In Housing, EXAMPLE: Skanska and its partners are pioneering the
connected and smart devices are gaining popularity. And by wireless monitoring of buildings, using sensors to record
interconnecting people, machines and data, smart-building data (such as temperature and vibration), and wireless
equipment is contributing powerfully to the optimization of equipment to store and transmit this data. Data analytics are
the O&M of buildings and other constructed objects. applied to determine the implications of any changes in the
sensor readings. These smart-equipment technologies have
The adoption of smart-building equipment is also a the potential to reduce unexpected failure by 50%, improve
prerequisite for smarter cities and an increasingly powerful building-management productivity by 20-30% thanks to
influence on peoples quality of life. less need for inspections, and improve the buildings energy
performance by 10% over its lifetime.
EXAMPLE: The South Korean city of Songdo which
claims to be the largest private real-estate investment
in history is a greenfield initiative, combining smart

Figure 8: Digital Technologies Applied in the E&C Value Chain


Figure 8: Digital Technologies Applied in the E&C Value Chain48

Design and
Planning Construction Operations
engineering

Life-cycle integration
User
interfaces Big data and analytics
and
applica-
Technology integration

Simulation and virtual reality Mobile interfaces and augmented reality


tions

Software Building Information Modelling (in the cloud)


platform
and
control Ubiquitous connectivity and tracking

3D scanning
Digital/
physical
integration
layer Unmanned aerial vehicles Embedded sensors

Cybersecurity
Note: The figure displays the main application areas of the respective digital technologies along the E&C value chain.
Source: displays
Note: The figure World Economic Forum;
the main Boston Consulting
application areasGroup
of the respective digital technologies along the E&C value chain.
Source: World Economic Forum; The Boston Consulting Group

Shaping the Future of Construction: A Breakthrough in Mindset and Technology 23


Digital technologies and big data along the to provide 22 design options in one day, a 95% time
value chain improvement on traditional design methods for similar
results.
Digitalization the development and deployment of digital
technologies and processes is central to the required EXAMPLE: Arup combines various data-collection
transformation of the construction industry. Innovations of methods, including mobile surveys, security-camera footage
this kind enable new functionalities along the entire value and traffic-flow reports, for improved decision-making in the
chain, from the early design phase to the very end of an design of residential projects.
assets life cycle at the demolition phase.
Companies can refine their monitoring of projects by
According to a recent study, full-scale digitalization in non- using drones and embedded sensors to enable real-time
residential construction would, within 10 years, be capable communication and to track people, machines, components
of producing annual global cost savings of $0.7-1.2 trillion and the construction process itself.49 3D scanners build
(13-21%) on E&C and $0.3-0.5 trillion (10-17%) in the digital models of existing buildings; they can also detect any
Operations phase.47 The core technologies enabling this deviations very quickly during the construction process, and
transformation are listed in Figure 8 and described below. can enable deformation monitoring.

First, the use of big data and analytics: algorithms generate EXAMPLE: Skanska is developing a Tag & Tack system,
new insights from the huge data pools created both on pioneering the use of radio frequency identification (RFID)
construction projects and during the operations phase tags and barcodes on products and components in
of existing assets. New methods of simulation and virtual construction projects. By facilitating real-time monitoring of
reality help to identify interdependencies and clashes (clash delivery, storage and installation in this way, the new system
detection) during the design and engineering stages, and is achieving reductions of up to 10% in construction costs.
enable a virtual experience of the building even in the
early design phase. By exploiting mobile connectivity and These digital technologies also facilitate the adoption or
augmented reality, companies can engage in real-time enhanced application of many of the other innovations, such
communication and provide workers with additional on-site as prefabrication, automation and 3D printing, and should
information. help to improve various processes in the industry, such as
front-loaded design and planning or project management in
EXAMPLE: Atkins has implemented advanced parametric general. For instance, advanced project planning tools use
design techniques for detailed design optioneering in the complex mathematical modelling to optimize the allocation
water infrastructure industry. That has made it possible
Figure 9: Applications of BIM along the E&C Value Chain of construction staff and individual roll-out functions for
infrastructure projects.
Figure 9: Applications of BIM along the E&C Value Chain50

Operations Building information Integration of Design and


support for renovation field data from engineering
and termination laser scans
Parametric
Data platform for modelling and Data repository for
condition monitoring object analytics-
libraries Construc-
and predictive tability and optimized design
maintenance clash
Storage, analysis
Data repository maintenance Model input to
for facility- and and utilization simulation and
of building Concept Coordination
asset-manage- information Renovation Design of design rapid
ment systems Life- disciplines prototyping
O&M
cycle Analysis
Integrated
Platform for
BIM design- Data delivery/
Handover Scheduling
construction integration for
virtual handover
process performance
and Construction Fabrication
analyses
commissioning Continuous Construction
system integr. planning and
across
parties
Coordi- Efficient, scheduling
Data exchange with nation of information-
Data exchange with
construction-monitoring subcontr. rich project-management
and surveillance tools and suppliers tenders tools
Label
Model input to automated and Model input to prefabrication and
autonomous equipment additive manufacturing
Construction

Source: Boston Consulting Group


Source: The Boston Consulting Group

WEF-constr-full-edit23-mar16.pptx 7
24 Shaping the Future of Construction: A Breakthrough in Mindset and Technology
To elaborate on one further digital tool: Building Information In BIM, data is created and shared in a more
Modelling (BIM) is gaining currency as a platform for central collaborative way, which leads to further issues
integrated design, modelling, planning and collaboration. regarding data ownership and liability.
BIM provides all stakeholders with a digital representation The benefits of large-scale BIM can only be realized
of a buildings characteristics not just in the design phase when all participants along the value chain get involved;
but throughout its life cycle. It presents several important without this interlinking effect, there is little benefit for
opportunities, as shown in Figure 9. the first movers.

Above all, BIM facilitates collaboration among all


The uptake and sophistication of BIM vary considerably
stakeholders from early design through to O&M and even
from country to country, and from company to company
to the decommissioning phase and thereby holds out
according to their size and position in the value chain. For
the promise of large efficiency gains. All stakeholders can
some large engineering companies, BIM is already part of
contribute information to and extract information from the
business as usual, but most small companies across the
central model. By providing a lifelong view of construction
value chain have little BIM experience. In fact, even some
projects, including the TCO, it offers owners great benefits in
of the major contractors have never used BIM on any of
the commissioning and operations phase, and enables new
their projects. The difference in adoption rates within Europe
business models, particularly in asset management. Such
is considerable; for example, 16% of E&C companies in
a life-cycle BIM eventually produces a continuous build-up
the United Kingdom have never used BIM, while in Austria
of know-how, by enabling a seamless flow of information
the figure is 49%.53 What the industry needs is big and
across different construction phases and stakeholders.
open BIM, which integrates the entire value chain and
By providing a neutral and unbiased view, BIM can also
is characterized by full interoperability of software and
contribute greatly to creating a level playing field in this
open access to it. The technical challenges are likely to be
regard, and more effective dispute resolution.
overcome in the near future, but it might prove more difficult
to change existing processes and to increase collaboration,
EXAMPLE: Atkins is applying advanced digital and high-
including data sharing. Here are some potentially helpful
tech solutions to high-hazard operations, such as the
steps in that regard.
retrieval of radioactive waste or the transport of spent
nuclear fuel.51 It uses 3D laser scanning and 3D cameras
For large companies:
to provide an accurate as-built status of the asset profile
up front, and thereby increases confidence in the design Build up the digital expertise and spread it across the
and facilitates delivery. Virtual reality and augmented reality company. E&C companies have not exactly been a
help to engage stakeholders, by clarifying the design and magnet for digital natives up to now, and they really
indicating progress throughout the projects life cycle; they need to attract a critical mass of such talent. Companies
also help to reduce the time that operators and surveyors should set up a central innovation department and/or
have to spend in high-hazard or high-dose areas. 3D BIM a BIM department to institutionalize digital endeavours
facilitates clash detection and by also incorporating and to expand the digital knowledge base more quickly.
programme details, cost constraints and asset-management Larger companies should appoint a chief technology
information it optimizes the use of data throughout officer. Make sure that all regionally dispersed divisions
the projects life cycle without loss, contradiction or and teams are part of the transformation.
misinterpretation. By learning from experience and EXAMPLE: Skanska established a robust network of
implementing its solutions adeptly across the full life cycle of BIM and Virtual Design and Construction professionals,
the project, Atkins can achieve as much as a 20% reduction who are committed to enhancing project planning,
in the time needed for completing a project, and up to 16% execution and delivery through the implementation of
in cost savings. new technologies and innovative processes. Within this
network is a core group of experts who are responsible
Prior to achieving large-scale implementation and all the for developing standards, training staff, providing project
potential benefits of BIM, however, various obstacles must support, sharing best practices and improving the way
be overcome:52 the company works.
Establish the technological foundation and complement
Implementing BIM, within a company and industry-
digital capabilities through third parties where
wide, requires a considerable build-up of expertise,
needed. Identify and prioritize the most relevant digital
especially appropriate employee training and substantial
technologies according to their maturity level as well
IT upgrading. Small companies will find that especially
as business and market needs. Invest in the requisite
challenging, as they might struggle to afford the upfront
software and hardware tools and IT infrastructure. Make
investments.
sure to gain access to and/or ownership of relevant
Technological standards have to be in place and data generated along the building life cycle.
interoperability must be ensured, so that the various
Take on pioneering roles and share expertise to
stakeholders can share information and cooperate on
encourage the adoption of BIM among smaller
planning.
companies, though without overstraining them or
Project owners will be slow to adopt the technology expecting equivalent commitment from them
until they acquire a greater understanding of the benefits
of BIM for them.

Shaping the Future of Construction: A Breakthrough in Mindset and Technology 25


EXAMPLE: Arup set itself the goal of using BIM on 2.2 Processes and operations
more than 80% of its design projects by April 2015, and
has developed a diagnostic tool measuring the degree
Front-loaded and cost-conscious design and
and success of a projects use of BIM. The company
has made the tool available to other companies.54 project planning
From a TCO perspective, constructions share of the total
For technology suppliers: cost over the lifetime of the asset can be as high as 10-
50%, while the O&M costs may account for 40-80%.56
Strengthen the core and seek to overcome These two major cost components are largely determined
interoperability issues and improve interface definitions. early on, during the design and engineering phase. At this
Strengthen the product offering for the traditional early stage, it is still relatively easy and inexpensive to make
target group of designers and engineers, by adding changes: hence the case for smart front-loaded design
functionalities and modelling dimensions, improving and engineering, as highlighted in Figure 10. By making
usability and simplifying reuse of the vast amount whole-life-cycle-conscious decisions and finding the right
of data from past projects. Agree on standards to innovative solutions, project planners can create significant
improve the interoperability of different BIM systems and value.
integrate all disciplines. Eventually, get the 3D models
connected to the Enterprise Resource Planning systems To achieve substantial improvements in construction
also, in order to create a single source of authoritative productivity and to reduce O&M costs, companies need to
data across all relevant systems. ensure that, during the design and engineering phase, they
EXAMPLE: Autodesk and Bentley Systems are working keep the actual construction process in mind, as well as
together to enhance interoperability between their the final operations phase. This early phase should ideally
portfolios of construction software.55 incorporate the knowledge of all companies along the value
Educate project owners on the advantages of using chain the main contractor, subcontractors, suppliers, and
BIM, and encourage them to use it early in the planning later on the assets operator, owner and maintenance firms.
process. Launch initiatives, such as value proofs, joint From the outset, stakeholders, especially of large and
pilots and digital-skills training courses for clients, to complex construction projects, should give prominence to
speed up the adoption of new digital technologies. project planning and scoping for instance, by conducting
sophisticated needs assessments and feasibility analyses.
Expand into construction and underserved markets Alarmingly, projects sometimes go to tender and even begin
by adapting to the specific needs of construction construction before detailed scoping and planning have
companies. Address new links in the value chain and/ taken place.
or new market segments. Offer operators a clearer
value proposition for their use of the BIM model after Figure 10: Cost of Changes in the Construction Life Cycle
handover. Ensure that everything is working smoothly
at the interfaces between BIM and adjacent facility- and
asset-management systems and building-automation
systems. Provide holistic solutions for the entire design-
build-operate life cycle.

Ultimately, digital technologies will realize their full potential


only if they are widely adopted as an industry norm. It is
crucial to create a fertile environment for the digitalization of
the E&C sector. In any given country, that is the task of the
government, as regulator and incubator, and often as a key
project owner. (see Chapter 4)

The ongoing transformation of the construction industry


will rely increasingly on BIM and the other digital tools. The
potential is there both for coordinating all the stakeholders
of construction projects and for facilitating construction
processes on-site. The latter aspect needs to be tackled
from two sides: suppliers of digital tools have to create
products relevant to construction; and contractors have
to rethink their approach to construction processes and
operations, so these become amenable to digital tools like Source: World Economic Forum; The Boston Consulting Group
BIM. This rethinking is the theme of the next section.

26 Shaping the Future of Construction: A Breakthrough in Mindset and Technology


Companies across the value chain can enhance front- Ensure successful know-how transfer across phases.
loaded design and project planning by adopting the This could be achieved by transferring construction
following procedures: experts temporarily to the engineering team, or by using
the same project manager across both the engineering
Highlight and plan adequately the construction and and the construction sub-phases. It usually entails
O&M phases (do so during the design and engineering new delivery methods with early involvement of the
phase) and continuously analyse the impact of all design contractor, or an approach where a single company is
and planning decisions. Apply Design for Manufacture responsible for design, engineering and construction.
and Assembly (DfMA) that is, design that facilitates (See the next section.)
the manufacture and assembly of components. And
Hire external experts to conduct independent design
consider, as soon as possible, what the optimal O&M
reviews and to ensure that the construction process is
regime might be, and how that might influence the
given appropriate weight in the early design phase. For
assets requirements, the design and the eventual
example, a specialized engineering company provides
handover of information to the operators.
services that optimize the conceptual design of wind
EXAMPLE: Fluor has achieved a noticeable reduction parks; the methods include conducting an economic
in direct scaffolding costs by starting its pre-planning of assessment of a parks layout and the energy efficiency,
the construction process very early, in the early design and reviewing (at an early planning stage) technical
and engineering phase. parameters like terrain conditions.
EXAMPLE: Atkins embraced the opportunities offered Conduct value engineering in consultation with all
by DfMA in a Priority Schools Building Programme in stakeholders
the United Kingdom. The measures included investing
EXAMPLE: Contractors for a large infrastructure project
in off-site manufacturing capability, using BIM to
in Florida, which was initially budgeted at $250 million,
speed up and coordinate aspects of design, using
identified cost savings of up to $70 million by means of
common specifications and details across projects, and
a value-engineering approach. Multidisciplinary teams
adjusting the business model to produce more detailed
reviewed the project and recommended alternative
information earlier in the process. As a consequence
designs, materials and methods such as eliminating
of these innovative measures, construction time
unwarranted illumination, reusing current roadways
decreased considerably and safety on the construction
and constructing a multi-use path within an existing
site improved greatly; the project cost and lifetime
pavement rather than acquiring a new one.57
cost (such as energy consumption) were reduced
and became more predictable; and the project as a
whole proved much more environmentally and socially
sustainable (causing less neighbourhood disruption, for
example) than if more traditional approaches had been
adopted.

Shaping the Future of Construction: A Breakthrough in Mindset and Technology 27


Innovative contracting models with balanced contractor advises on project engineering and planning,
risk sharing and a target price is agreed upon; if that target price is
met, the contractor will be retained for the construction
To realize the full potential of front-loaded and cost- phase as well.
conscious design and project planning, it is crucial to get EXAMPLE: The contractor in a pilot project of six
all relevant parties engaged and well coordinated early windmills in the United Kingdom participated in an ECI
on.58 All those parties involved in the construction process model when the projects feasibility became doubtful
owners, contractors, subcontractors and suppliers owing to the soaring price of the required steel. The
obviously have a vested interest in on-time performance and contractor not only helped to find a cost-effective
on-time payment, and would benefit by shifting away from design alternative but also developed, together with
the classic sequential design-bid-build approach to a more the crane supplier, a bold lifting solution with a reduced
integrative approach. counterweight.
Construction companies could take on new roles by Companies could also begin by developing and
applying innovative contracting models. In a design- applying smart collaboration models. Unfortunately,
build (DB) approach, for example, a single company any new, collaborative approach increases the risk
could through a single contract with the project owner of conflict between the partners as new routes are
undertake to provide all design and construction embarked on and clear historic borders blur. Witness
services and therefore contribute to better trade-offs the recent increase in the length and cost of stakeholder
between design and construction decisions. PPPs can disputes: in 2014, each dispute had an average value
accelerate infrastructure programmes by tapping into of $51 million and lasted 13 months.60 Certain models
the private sectors financial resources, as well as its of cooperative partnerships, however, can reduce the
skills in designing, building and operating infrastructure number of such conflicts or at least accelerate their
on a whole-life-cycle cost basis. An early contractor resolution. They do so by establishing a culture of trust
involvement (ECI) model integrates design development and mutual respect among the participants. Figure
and construction planning by including a contractor 11 provides a non-exhaustive list of measures: their
in the early planning stages.59 In the first phase, the applicability varies according to the type and set-up of
the project.
igure 11: Elements of a Cooperative Partnership
Figure 11: Elements of a Cooperative Partnership61

Project charter Transparent Co-location Common data


Project
with common financials of teams platform
culture project goals (open books) (big rooms) (e.g. BIM)

Choosing most Multi-party con- Early involve- Prudent manage-


Tendering
efficient, tract with clear ment of key ment and appropri-
and contract not cheapest accountabilities participants ate allocation of risk

Alternative cost Incentives Premium Shared risk/reward


Incentive
models, such as for cost for early project (pain share, gain
mechanisms target cost optimization delivery share)

Collaborative Internal dispute Third-party Decision by


Conflict
decision-making resolution via mediation and adjudicator or
resolution and control1 negotiation conciliation arbitrator

1 Potentially including liability waivers among participants


1
Potentially including liability waivers among participants
Source: World Economic Forum; Boston Consulting Group
Source: World Economic Forum; The Boston Consulting Group

WEF-constr-full-edit23-mar16.pptx 9

28 Shaping the Future of Construction: A Breakthrough in Mindset and Technology


Companies should increasingly use models based A common and appropriate framework for
on these principles. One such model is an alliance project management
between a project owner and private-sector parties for
delivering one or more construction projects, where the The execution of construction projects all too often relies
parties generally have to work together as an integrated, heavily on the expertise or even intuition of the individual
collaborative team. Another such model is integrated project manager. Even though no two construction projects
project delivery (IPD), with core elements such as are identical, the lessons learned from any one project
target cost pricing, shared risks and rewards, common can prove very helpful when applied to another. Ideally,
collaboration platforms like BIM, and cross-functional companies should institutionalize these lessons, so that
groups. project management can undergo continuous improvement
across projects.
EXAMPLE: A study by the Australian Department of
To establish a common framework for project management
Treasury and Finance found that companies achieved
in this way, construction companies should consider taking
significantly greater value for money when implementing
the following steps:
alliance-based delivery methods in infrastructure projects.
The reason is that alliancing has demonstrated its ability to
Collect and consolidate project-management data.
avoid disputes, improve non-cost outcomes and commence
Among the requirements here are an improved project-
projects earlier than by traditional methods.62
monitoring system and a strong reporting tool, enabling
the continuous collection of project data.
EXAMPLE: The California Pacific Medical Center used
an IPD agreement to coordinate the main participants in Standardize the identification of best practices. This
a project. The projects owner, architect, project designer includes evaluating the performance of individual
and qualified construction manager had a shared risk/ projects and developing a portfolio of best-practice
reward pool and waivers on liability. The cost of IPD pre- processes to accommodate a variety of different
construction services was well worth it, as significant projects.
savings followed, and the project achieved a 200% return Make sure that the best-practice standards actually get
on investment. The savings can be attributed mainly to the applied at the project level. If necessary, educate project
target value design process, which made all design-team managers and other important decision-makers in the
members accountable for creating maximum value within appropriate processes, or make the best practices
the target cost. Further success factors were the co-location mandatory.
of teams, and the compulsory use of BIM by all IPD team EXAMPLE: A mid-sized Swedish construction firm
members, including trades.63 reduced the choice of building materials for its on-site
project managers, so the workers no longer needed
In any of those innovative contracting models whether to be familiar with so many components, and errors
DB, ECI, PPP, alliances or IPD it is always important to diminished accordingly.
improve accountability and manage risks effectively. These
goals can be achieved by making information available A key facilitator in implementing these steps is a set of
to all stakeholders at an early stage, by ensuring prudent company-wide software tools. These tools will help in
risk-allocation among stakeholders and by encouraging connecting islands of information, making information easily
a common risk-management strategy.64 World Economic available and simplifying actual project management (by
Forum E&C Governors and Risk Task Force members providing support for scoping, scheduling or costing).
identify the key levers as follows:
(i) control the level of risk exposure by allocating risk to A final note in this regard: formerly, the term project
the party that can manage it best, and understand management was often used to refer merely to the
emerging risks better execution component of a construction project, and the
(ii) secure fair compensation for the risks, by understanding emphasis was mainly on the project managers ability to
their true value, and educate all stakeholders about deliver in line with budgets, timelines and specifications.
them Modern project management, however, concerns itself with
the planning and strategic components as well; it engages
(iii) control the cost of risk management, by acquiring with the front end, for instance, as the source of particular
the capabilities needed economically and by sharing benefits and value, and assigns great importance to the
specialist resources interdisciplinary, interpersonal and integrative aspects of the
project managers role.65

Shaping the Future of Construction: A Breakthrough in Mindset and Technology 29


Enhanced management of subcontractors and involves analysing real-time operational data, monitoring
suppliers exceptions, forecasting changes and adapting to them
dynamically as they occur on construction sites.
In many developing countries, purchasing materials and
components poses a serious problem namely, the Lean and safe construction management and
shortage (often temporary) of some critical resources,
such as cement or steel. In complicated projects, as in the
operations
petrochemical industry, companies even in developed Following Toyotas innovative use of lean methods to
markets often have to import components from other improve productivity in automotive manufacturing, many
countries, and the delivery status and current location of companies in discrete and process manufacturing industries
those components may be unclear. As a result, projects have applied lean to manage complexity and drive step-
are delayed; alternatively, companies will build up large change improvements in efficiency. For project businesses
stocks of some materials in an effort to compensate for like construction, it is more difficult to apply lean, given the
an unreliable supply chain, and will thereby tie up large great complexity of their operations (one-off projects, varying
amounts of working capital. teams, and so on) and the challenge of external factors such
as the weather.
It is crucial to integrate suppliers and subcontractors more
effectively, and that task falls mainly to the main contractor. That said, those construction companies that have
Various measures are available, not just in the planning successfully applied lean methods have reduced
phase but throughout the entire project. The goal should be construction time by up to 30% and reduced costs by
to establish an agile supply chain able to respond flexibly up to 15%. But the adoption of lean methods is still not
and promptly to changes in the external environment widely prevalent in the construction industry, despite the
(weather-related hold-ups, changes in scope and schedule, relatively low investment needed. To make major and lasting
regulatory changes) and integrate well with other parts of the productivity improvements, the industry must embrace lean
business in addition to procurement. The supply chain as a construction more broadly.
whole should be regarded as a business partner.
A lean approach reduces complexity and uncertainty
The first step for a contractor might be to consolidate some by reducing waste and non-value-adding activities
of its internal functions such as procurement, quality and throughout the entire value chain: it reduces, for instance,
logistics into a central team, to work more closely with schedule deviations, waiting, stocks of building materials,
the supply chain.66 The contractor would then abandon the transportation, rework and unused or underutilized
old system multiple, ever-changing transactional supply resources. In that way, it makes processes more stable,
contracts, with great complexity and little reliability for predictable and efficient.
both sides and switch to a new system involving fewer
contracts but more strategic long-term cooperation. Such Four core principles underlie the use of lean methods in
a switch not only will reduce the contractors administrative construction projects (see Figure 12):
burden and initial set-up costs, but will enable suppliers to
conduct long-term planning, and will often bring innovations Alignment of resources, material and information flows.
to the market. Nevertheless, the long-term commitment Optimize the construction process by, for instance,
should be accompanied by a transparent, fair and regularly identifying repeatable elements and sequencing the
revised evaluation of the suppliers. various work shifts accordingly. For example, the
building could be divided into several sections to
EXAMPLE: The UK-based contractor Prater recently allow a value-creation flow based on the orchestrated
won a supply-chain-integration award for its long-term movement of subcontractors and craftspeople through
commitment to its suppliers; the company hosts an annual each section.
supply-chain conference, for example, where common Coordination and harmonization of takt speed.
strategies are developed.67 (Takt speed is, roughly, the work pace or rhythm;
typically, work cycles vary from one day to one week.)
EXAMPLE: The US-based homebuilder David Weekley Synchronize the steps, identify and ease bottlenecks,
Homes conducts a quarterly evaluation of its suppliers and smooth the flow of construction work to avoid idle
performance in areas such as reliability, communication and times by, for instance, sizing teams appropriately and
timeliness, and honours partners of choice with annual moving rework to night shifts or weekends.
awards.68
Just-in-time pull of resources and materials. Plan work
at the request of a downstream customer. Ensure
Finally, the increased adoption of digital technologies
that the availability of materials is in sync with the
like BIM can also help to integrate the supply chain more
progress of construction by, for instance, transporting
closely. It could improve service levels and reduce costs,
materials just in time and to precise locations on the
particularly by connecting disparate systems and by
site. This approach also promotes flexibility, by allowing
providing end-to-end visibility into the supply chain.
contractors to accommodate their clients last-minute
decisions.
EXAMPLE: SAP solutions for Connected Construction aim
to connect all construction equipment onto a single platform
and to ensure just-in-time delivery of supplies. The process

30 Shaping the Future of Construction: A Breakthrough in Mindset and Technology


ure 12: Lean Principles in Construction

Figure 12: Lean Principles in Construction69

Alignment of resources, Coordination and Just-in-time pull of Continuous improvement


material and info flows harmonization of takt speed resources and materials of process

5 6 5 6 5 6 5 6

4 3 4 3 4 3 4 3

1 2 1 2 1 2 1 2

Value-creation flow Synchronized scheduling Just-in-time resource pull Zero defects

Source:BCG
Source: BCG Lean
Lean Construction;
Construction; WorldWorld Economic
Economic Forum Forum

Continuous improvement of processes. To minimize employment arrangements.71 New digital tools can help
delays and defects, implement continuous monitoring greatly in this crucial endeavour; for example, RFID enables
and make use of regular feedback loops via, for automated collision prevention of workers and machinery.
onstr-full-edit23-mar16.pptx
instance, daily and weekly meetings and project But it takes more than technology, of course: more rigorous
steering routines. approaches are also essential if safety is to improve.

EXAMPLE: Despite an initial six-month delay on a plant EXAMPLE: Fluor addresses the risks to workforce health
project in Brazil (due to the need for soil improvements), and safety by launching detailed investigations into even
BMW nevertheless completed the construction extremely minor incidents, such as a near miss when a machine
efficiently: it managed to halve the expected construction almost has a collision even if it was only with a fence.
costs and build 50% faster than scheduled. This success
was largely due to the rigorous adoption of lean construction Rigorous project monitoring (scope, time,
methods. Prefabrication, for example, enabled takt planning
for iterated quadrants; regular stand-up meetings, on-site
cost)
dashboards and key performance indicators (KPIs) were For the construction industry, accurate and up-to-date
used to create transparency and to improve the exchange budgeting and scheduling are particularly acute challenges.
of information; and integration workshops, conducted for The issue for construction companies is not only the
suppliers at each project phase, improved collaboration. frequent deviations from the estimated costs and schedule;
it is also the late detection of these deviations. Typical
reasons would include unexpected soil conditions and
Lean processes bring about improvements not only in
scope changes agreed on a lower operational level that turn
cost and delivery time but also in quality and safety. Safety
out to have major implications. This late awareness limits
is a crucial area of action for the construction industry,
the companies ability to take timely mitigation measures
during all project phases. The industry has made great
or to revise the contract. In many cases, the financial and
progress in the recent past, yet it remains one of the
reputational consequences are severe.
most dangerous industries to work in.70 It must continue
its efforts to reduce the hazards involved and to raise Currently, project monitoring in the construction industry
labour standards in construction globally. This imperative often consists of little more than post hoc documenting
applies to the whole supply chain, and it is particularly of the cost overruns and construction delays. Project
demanding: the fragmentation of the industry, together monitoring needs to become more real-time and forward-
with a lowest-price culture, often entails compromises on
labour or environmental performance, as evident in informal
Shaping the Future of Construction: A Breakthrough in Mindset and Technology 31
looking than that, and to provide data that can immediately the asset has been built on the ground, accurate life-cycle
be translated into action action that will bring projects performance models cannot be developed and life-cycle
back on course. The following steps are recommended for costs cannot be optimized via the intelligent planning of
companies:72 future maintenance and rehabilitation actions. Especially
with the help of modern equipment and technology, the
Establish the right metrics, and monitor continuously. necessary information can be captured and as-built
Define appropriate KPIs that create transparency on records developed. That will help not only with optimizing
the projects progress and enable early identification the life-cycle costs, but also in confirming that an asset
of any deviation. Monitor regularly, ideally every day, has been constructed as originally intended and thus in
the schedule adherence of each process cycle, and protecting clients from fraudulent contractors.
report it as being either on track or requiring action.
Leverage state-of-the-art digital tools, big data and new EXAMPLE: Atkins has worked with several clients
construction equipment in order to generate project- worldwide, including Heathrow Airport, to advance the
monitoring data more efficiently. leverage of laser scanning technologies to automate 3D/BIM
EXAMPLE: ImageIn Flight is using drones equipped model creation and support a basis for asset tagging and
with cameras to generate 3D footage of construction management to optimize O&M.
sites continuously. Sophisticated software then
compares this data against architectural plans and 2.3 Strategy and business model
previous images in order to measure progress and
identify areas in need of action.
innovation
Communicate early and inclusively. Make sure to clarify
and visualize all relevant information regarding the Differentiated business model and targeted
construction project in order to foster communication consolidation and partnerships
about the schedule and plan. For example, if displayed Competition in the construction market is traditionally
steering boards show the status of KPIs for scheduling fierce, and margins are accordingly slim. Many construction
and quality, that should enable teams to track progress services are highly commoditized, and tender procedures
regularly and to stay informed about the common goals. exacerbate the cost pressure. Many firms are therefore
EXAMPLE: A public shipyard achieved impressive seeking opportunities to differentiate their services in the
productivity improvements by means of enhanced marketplace and identify their sweet spot strategic focus.
collaboration and accountability between different They need to define their sector coverage finding the
teams, using a concept called project room. The right balance between specializing in a specific industry
project room, as a central collaboration forum, hosted and developing customized solutions on the one hand, and
daily stand-up meetings, lasting just 30 minutes, where becoming more general and thereby achieving economies of
all relevant functions were represented engineering, scale and diversifying risk on the other. And they also need
purchasing, production engineering and production. to decide on their value-chain coverage that is, their scope
Each function displayed its own information panel, of services from design and engineering to construction to
featuring various colour-coded KPIs, the current state of O&M.
progress, and a list of ongoing actions.
Take the appropriate remedial action. Introduce Given the varied and sophisticated customer requirements
processes for translating enhanced monitoring in todays construction markets, many E&C firms struggle to
capabilities into improved construction practices, for develop the required know-how internally. One response is
example by establishing a project-quality-gate cycle to improve collaboration on a project level, as discussed in
involving regular site controls that immediately trigger section 2.2, or on an industry level, as discussed in section
corrective measures where necessary. 3.1. Another response is to partner with, merge with, or
EXAMPLE: Fluor uses a system-dynamics model to acquire other companies especially if the target company
simulate the impact of potential changes on a diverse has mastered the latest technologies or complements the
range of construction projects, and thereby to improve portfolio as part of a strategy to integrate along the value
decision-making and client information. By seeing the chain.
cause-effect paths, planners can more easily establish
what remedial actions would be most effective in EXAMPLE: Fluor, in response to the need for great capital
reducing the impacts.73 efficiency from clients, has focused on being an integrated
engineering, procurement, fabrication and construction
BIM can play an essential part here: it comprises the company. It also plans to integrate further services, such
graphical model of the asset, information on construction as operations, maintenance and water treatment. It has
sequences over time and information on costs, and thereby invested in additional fabrication capacity, allowing for
allows for continuous monitoring.74 modular execution with pre-assembling, and in keeping
with its aim of strengthening its integrated-solutions
Another important topic is the need to capture as-built capabilities it recently announced the acquisition of Stork,
information from projects, in contrast to as designed, a global provider of maintenance, modification and asset-
which is what the original design drawings contain. This is integrity services.
of paramount importance: unless it is possible to know how

32 Shaping the Future of Construction: A Breakthrough in Mindset and Technology


Liaisons with start-ups or other firms with a digital from the increased flexibility, now that power is available
background can also help large established companies to through the building materials; the operations phase
absorb digital advances quickly and effectively. For instance, benefits, in that lighting and other light home appliances
a US E&C giant recently partnered with the technology start- can now be powered without the complication of electrical
up company Skycatch, which has unique expertise in the wiring.
use of drones.
EXAMPLE: Bre innovation parks, with current hubs in the
As the boundaries between traditional roles and companies United Kingdom, Brazil, China and Canada, are showcase
begin to blur (thanks to BIM, for example), new disruptive neighbourhoods that experimentally incorporate new
business models will emerge. Consider the following two sustainable construction technologies with increased life-
examples, which are trying to redefine ways of construction: cycle performance. For instance, an insulation material,
originally developed by NASA, has been adapted for use
EXAMPLE: The British insurer Legal & General will invest in window blinds that control heat in different seasons, and
50 million in a flat pack housing factory to prefabricate can save up to 40% of energy costs during the operations
complete homes, including white goods and interiors.75 As phase.
part of this disruptive move, the insurance giant has teamed
up with the Dutch pension-fund manager PGGM. They will In addition to developing products with optimized whole-life-
construct 3,000 apartments across the United Kingdom, cycle costs, construction companies need to follow another
under a 600 million build-to-rent plan, to help tackle the strategic imperative, namely, to incorporate principles of
housing crisis. sustainability into their strategies and business models.
Given the scarcity of natural resources and the high societal
EXAMPLE: Aditazz describes its visionary approach to cost of construction externalities (notably, the emission of
construction as being based on innovation, particularly by carbon dioxide, and the pollution of soil, water and air),77
integrating technology, design and modular manufacturing. the industry has a major opportunity here to contribute to a
From architectural work via engineering to final project more sustainable world economy. Just consider the amount
delivery, the company handles all aspects of building new of construction and demolition waste that is currently not
healthcare facilities, by means of a single innovative data- recovered in the United States (see Figure 13) and the
driven platform. That suggests a business model heavily manifold opportunities for recycling.
inclined towards investments in technology, processes,
people and the integration of the supply chain, and a unique To make their business more sustainable, construction
selling proposition based on innovation. companies should consider closed-loop circular design
principles as described in Figure 14, and embed them into
Sustainable products with optimal life-cycle their product portfolio and business models.
value
EXAMPLE: Tarkett has committed to making a transition
On a typical vertical construction project, over 30 years of a to the circular economy and has developed an approach
buildings life, the present value of O&M and utility costs is called Closed-Loop Circular Design.79 The foundations of
nearly as large as the initial project costs.76 Even so, it is still this approach include choosing good materials that can
not standard in the industry to make a deliberate life-cycle- be recycled; minimizing the environmental footprint during
cost optimization of the final asset. Multiple possible reasons production (by such means as a closed water cycle, or
explain this neglect. One reason might be conflicting the use of biomass to produce energy); creating products
interests between developer, constructor and asset owner, containing, for instance, minimum levels of total volatile
owing to trade-offs between initial investments and the organic compounds; and changing from an end-of-life to an
subsequent life-cycle costs. Another might be the absence end-of-use mindset for products.
of a neutral and unbiased view of the life-cycle value of built
assets. Another worthwhile endeavour is to develop and
institutionalize new forms of planning that incorporate
To remedy this unsatisfactory situation, the industry should sustainability and whole-life-cycle concepts.
invest in designs and systems with improved long-term life-
cycle performance considering not only the first costs of EXAMPLE: Atkins applied Transit Oriented Development
a building (design and construction expenses) but also long- an approach to development that focuses on land uses
term costs, such as utilities, O&M and externalities. Several around a transit station or within a transit corridor in all
companies are conducting pilot schemes to test such development phases of the Cadre International Center in
new systems, collect information and generate convincing Guangzhou. The results included improved living, working
evidence of value. and commuting conditions, and enhanced use of public
transport. Atkins also applied a new type of urban planning,
EXAMPLE: LIXILs U-Home and IoT House products aimed at boosting sustainability from the earliest stages.
use sensors to collect data from residents, and then In close collaboration with Chinas Ministry of Housing and
use the data to derive patterns and insights related to Urban-Rural Development and other stakeholders, Atkins
human-centred living technologies. In addition, LIXIL has developed a clear, practical framework, incorporating
developed wireless power-supply tiles based on magnetic a sequential, process-based, step-by-step agenda for
field resonance and is thereby improving the life-cycle sustainable urban planning.
performance of buildings. The construction phase benefits

Shaping the Future of Construction: A Breakthrough in Mindset and Technology 33


igure 13: Construction and Demolition Waste: A Notable
Opportunity
Figure 13: Construction and Demolition Waste: A Notable Opportunity78

Less than one-third Much discarded material


of construction and demolition waste is currently could be recovered for
recovered purposes of

Recycled or 14% Other


reused 2030%
10% Gypsum board Fertilizer additive
Concrete/
11% Gravel, erosion control
rock/brick
11% Soil/fines Reuse after treatment
Asphalt
14% Road-building materials
products
Discarded 7080%

40% Lumber Wooden flooring material

Construction and Composition of


demolition waste discarded waste
Source: Ellen MacArthur Foundation; World Economic Forum; The Boston Consulting Group
Source: Ellen MacArthur Foundation; World Economic Forum; Boston Consulting Group

WEF-constr-full-edit23-mar16.pptx 11

Internationalization strategy to increase scale


Construction firms have traditionally focused on their home
countries, as construction is a local business in which local
relationships, assets and resources are extremely important.
This tendency militates against economies of scale,
however, especially for very large, complex construction
projects. As emerging countries accelerate their urban
and industrial development, new construction markets
are opening up for developed-country companies. At the
same time, emerging-country companies are interested
in getting involved in projects in developed countries. It is
crucial for all companies in the industry to develop a clear
internationalization strategy.

Many companies are already establishing a foothold in


foreign countries and striving to boost their market share
there. When entering new countries, companies will usually
find that the best strategy is to cooperate with local firms,
via strategic equity alliances and joint ventures, or else to
pursue mergers and acquisitions. In that way, they can
combine their own expertise with the incumbent partners
local knowledge and relationships. In many fast-growing
markets, the local authorities actually advise, request or
even require such partnerships. The value of local partners
is particularly high in respect of understanding national or
regional regulatory requirements, dealing with the local
labour force, and negotiating a way through cultural or

34 Shaping the Future of Construction: A Breakthrough in Mindset and Technology


Figure 14: Circular Economy Principles in the bureaucratic obstacles. Choosing a local partner is seldom
Construction Value Chain80 easy, however, as knowledge of the candidates is limited.

EXAMPLE: Through acquiring Foster Wheeler in 2014,


AMEC increased its presence in the Latin American market,
gained additional expertise in the oil and gas segment,
and doubled revenues from developing markets. In 2015,
the newly merged company formed a joint venture with
the Ghanaian company BBS Engineering to combine the
incumbents local skills, knowledge and experience with
its own international standards and global capability and
quality.

EXAMPLE: Atkins recently announced the acquisition of


Howard Humphrey, based in Kenya and Tanzania, thereby
expanding its global infrastructure presence into East
Africa. Atkins is leveraging Howard Humphreys engineering
consultancy and project management services in the
transportation, water and property markets.

Source: Ellen MacArthur Foundation; World Economic Forum;


The Boston Consulting Group

Shaping the Future of Construction: A Breakthrough in Mindset and Technology 35


2.4 People, organization and culture In response to these challenges, construction managers
need to engage in strategic workforce planning, in order
to anticipate their companys workforce needs and
Strategic workforce planning, smart hiring, priorities well in advance. In addition, they need to develop
enhanced retention pre-emptive measures, such as comprehensive talent
management, including smart hiring and enhanced retention
The E&C industry will face stiff recruiting and talent
strategies.
challenges in the years ahead. One major challenge is the
prospective scarcity of skilled labour, driven by demographic Strategic workforce planning. This planning involves
shifts in developed countries. A case in point is the United a scenario-based approach that will keep a business
States: between 1985 and 2014, the average age of sustainable from a people perspective. The steps are as
construction workers surged from 36 to 43 years, while over follows:
the same period the proportion of soon-to-be retirees (aged
45 to 64 years) increased from 25% to 40% (see Figure 1. Take a long-term view of workforce demand, by
15).81 Another serious challenge relates to the increasing simulating the future project pipeline. This forecast
sophistication of technology, which demands new and should be made on a granular skill-cluster level: it
broader skill sets at all levels of a company. A final challenge should consider, for example, future skills requirements
is the high volatility of workforce demand and composition: in the digital space or the need for local market
staff demands become evident at short notice following a experts, but also expected productivity gains through
competitive tendering bid, and the execution of contracts technological advances. Note that changes can go both
typically requires the short-term integration of a transient ways: there will be a need to upgrade relevant (digital)
workforce from multiple subcontractors. skills and provide the appropriate training; on the other
hand, some complex tasks will now be performable
by lower-skilled workers, thanks to decentralized
information and perhaps augmented reality.
Our business is really all about 2. Simulate the workforce supply accordingly based on
people. You can have equipment existing staff rosters; consider, for example, shifts in age
profiles and capacity losses through attrition.
and financial resources, but to 3. Identify gaps and risks, and devise, on that basis, an
truly succeed in a business like executable workforce plan, including interventions to
ours you need to have the right address any over- or under-supply of staff and any skills
gaps. Initiate measures, such as recruiting, training,
people in the right places. transfers, in-/outsourcing or lay-offs, appropriate to
the significance for the business and to the time for
qualification. For instance, in more developed markets,
the construction sector could provide good entry-level
Peter Bjork, Vice-President, Information Systems Strategies, Skanska,
jobs for refugees, whose upskilling potential is great,
Sweden
and who could rejuvenate the current workforce.
5: Worker Age in the US Construction Sector, 1985-2014
EXAMPLE: Fluor maintains a database of information on
Figure 15: Worker Age in the US Construction Sector, high-performing employees their experiences, training,
1985-201482 mentoring and career goals and matches it with the
expected demand over the next decade in each of the 30
Average age of countries where it operates. In this way, the company can
Age distribution workers (years)
align global talent-development efforts with its long-term
100% 2% 2% 2% 2% 2% 45
3% 4% strategic plans.
43
25% 25% 26% 42
29%
80% 32% Smart hiring. In a 2014 survey of more than 1,000
40%
39 39%
construction firms in the United Kingdom, 36% of the firms
39 40 that had tried to recruit skilled staff reported difficulties
60% 38
in filling the positions. This recruiting problem spans
37
36 all occupational groups from skilled workers at the
40% 59% 60% 56% 53% construction site to functional specialists at headquarters.83
54% 50% 48% 35 In an industry with a traditionally poor employer image on
the labour market, smart hiring practices can be a powerful
20%
tool to attract the requisite talent. Besides investing into
18%
14% 12% 13% 13%
a strong recruiting brand, managers of E&C firms and
8% 9%
0% 30 suppliers should consider taking the following steps:
1985 1990 1995 2000 2005 2010 20141
65+ 4564 2544 1624 Average age Establish customized recruiting channels for key target
1 Latest
figures available groups; set up a social-media-focused recruiting team;
Source: US Bureau of Labor Statistics; World Economic Forum; Boston Consulting Group
1
Latest figures available build up capabilities to address unfamiliar candidate
Source: US Bureau of Labor Statistics; World Economic Forum;
The Boston Consulting Group pools (such as IT specialists).
23-mar16.pptx 13

36 Shaping the Future of Construction: A Breakthrough in Mindset and Technology


Increase efforts to achieve gender equality in the United Kingdom, for example, only 57% of construction
construction; that involves not only making changes to firms funded or arranged training for their staff in 2015; just
attract more women, but also recognizing and building one sector fell below that figure the agriculture sector, with
on the strengths and characteristics of women.84 50%.87
Promote the role of technology and the broader societal
Effectively designed training systems should improve both
impacts of construction, especially when pitching jobs
the performance and the engagement of workers, and
to younger people.
also their health and safety. The best practices include the
Engage in partnerships that create a pipeline of suitable following:
candidates (for example, university collaborations).
Align training efforts to business strategy. Design or
Enhanced retention. Ultimately, the success of any human adapt training programmes and curricula to prepare
resources strategy depends critically on the companys employees for the organizations current and future
ability to create a preferred employer position and thereby needs. Occupational safety and health (OSH) training
to retain the requisite diversity of skills and the right number should be a key element.88 Break down functional silos
of top project managers. According to the US Bureau of by, for instance, complementing technological know-
Labor Statistics, the E&C industry records some of the how with commercial capabilities, or broadening the
highest employee turnover rates across all industries in skill set through job rotation along the value chain. Pay
2014, a remarkable 21.6% of construction workers quit or adequate attention to soft skills (notably, leadership
had to quit their job. This churn is particularly troublesome in or cultural interests) and hard content (such as lean
long-term large-scale projects.85 In the United States alone, construction or project management). One of the top
unwanted employment turnover is creating additional costs priorities of many E&C companies over the next few
for E&C companies estimated at $140 billion annually, in years will be the upgrading of digital skills.89
recruiting, training and administration.86 For E&C companies Offer rich development opportunities. Effective training
to mitigate attrition, the following measures are crucial: combines multiple approaches: in-house and external
(for example, through partnerships with education
Provide attractive benefits, both intangible (such as providers, corporate universities or key suppliers,
training and recognition) and tangible (notably, adequate such as chemicals or equipment firms), as well as
compensation packages and retention-incentive formal (classroom courses) and informal (coaching and
programmes). mentoring, on-the-job) to ensure that knowledge is
Tailor messages and career-development offerings to efficiently transferred to the younger generation. Exploit
target groups (women, for instance, or millennials). technology, by adopting e-learning, simulation-based
Cater for the specific needs of older workers (including training and automated tracking of learning progress.
workers with reduced physical capacity) for example, Include all staff. Customize offerings to different target
by pairing them with junior workers in blended crews. groups (for instance, construction workers, functional
Consider all psychological aspects (corporate social experts, senior management), taking into account
responsibility, executives as role models, and so on). the different needs of diverse generations within the
workforce (traditionalists, baby boomers, generation X,
millennials).
EXAMPLE: For several years in a row, DPR Construction
has been ranked among Fortunes 100 Best Companies
to Work For. Notable elements of the companys human EXAMPLE: Fluor recently gave $1 million to the University
resources strategy are a strong mission statement (we of Houston to establish a partnership in construction-
exist to build great things) and progressive values (integrity, management education, focusing on research and
enjoyment, uniqueness and ever forward); title-less business professional development.
cards to allow individuals to take on multiple roles and levels
of responsibility; an open-office environment, including wine EXAMPLE: Skanska has implemented an organization-
bars; and free use of company-owned vacation property. wide, cloud-based training system to continuously track
capability development along the employee life cycle. For
example, as employees take classes, the supervisors
Continuous training and knowledge
can consult the system to monitor progress and align the
management
content to each individuals development plan.
Continuous training of staff can help to address the various
challenges confronting the E&C industry the demographic So, people development ensures that staff continuously
changes, the technological and process advances, and grow and acquire the right skill set. It does so by leveraging
the legislative and regulatory requirements. For instance, the companys knowledge base. But what happens to
project managers will eventually manage multi-billion dollar the extra knowledge or intellectual capital that is being
projects and the required skills need to be developed created every day on projects or in internal R&D? That too
accordingly, starting in the early stages of a career. In needs to be actively managed and exploited. Knowledge
addition, the provision of training can make employees feel management should be given a key role on any corporate
more appreciated and can contribute to a more vibrant agenda, yet many construction firms make poor use of
company culture. Relative to other industries, construction such a rich resource. Accordingly, they fail to benefit from
companies conduct few people-development initiatives. In experience as they move from one project to another,

Shaping the Future of Construction: A Breakthrough in Mindset and Technology 37


working with different partners along the value chain. E&C High-performance organization, culture and
companies need to take action in three main areas, as incentive schemes
follows:
Many construction firms are still characterized by a rather
Take a structured, coherent approach to knowledge conservative company culture and mindset, and are often
management. Implement appropriate processes hampered by organizational inertia. To support their overall
and functions, so that the capture, consolidation, business goals, companies need to drive organizational
dissemination and reuse of (project) knowledge become change an iterative process, which requires careful
everyday activities. By institutionalizing things in this way, alignment of company culture and goals, organizational
companies enable their employees to access and apply design and incentive schemes. In particular, it involves the
the right knowledge, at the right time and in the right following steps:
place.
EXAMPLE: Fluors Vice-President of Innovation brings Conduct an organizational health-check and refine the
innovations into the organization by acting as a cauldron companys purpose and culture. Evaluate the degree to
of ideas, evaluating new methods qualitatively and which company culture and the working environment
quantitatively; Fluors Vice-President of Continuous are conducive to individual and team performance,
Performance Improvement makes sure that tools and innovation and improvement, collaboration and
techniques are continuously updated and improved. knowledge sharing, ethical principles (for instance,
related to safety, the environment or transparency),
Foster a culture of proactive knowledge sharing. In
diversity and inclusion, and openness and trust. Create
the E&C sector, many experienced professionals view
a (revised) mission statement and statement of values,
knowledge as power and are reluctant to share it. Whats
as well as a detailed plan for achieving new goals.
more, the workforce often seems unwilling to learn from
others experiences. To overcome these cultural barriers, EXAMPLE: Skanska crystallizes its company purpose
companies need to clearly articulate objectives and in the motto We build for a better society and its
guiding principles for knowledge sharing and provide core values in the injunction Care for life, act ethically
appropriate incentives. and transparently, be better together, and commit
to customers. These credos underline the companys
Create transparency on the internal skills available. Given
the enormous variety of construction projects and the focus on ethics, responsibility and sustainability.
difficulty of instantly finding individuals with the relevant Establish a supportive organizational design.
expertise or project experience, E&C companies should Construction is a local-project business that requires
maintain centrally an accurate employee database. Only decentralized operative decision-making, close to the
in this way will they be able to optimize their workforce client. In such a context, it is perhaps more difficult,
allocation. The database should include at least the work
record and project experience of each employee, and
thereby facilitate the informal exchange of knowledge.
Leverage technology. Information technology has long
been recognized as a critical facilitator of successful
knowledge management. Among the most common
and useful tools are groupware systems, intranets and
extranets, and content management systems. For
E&C companies in particular, BIM has the potential to
greatly facilitate the management of project knowledge
for instance, by integrating comprehensive object
libraries and by enabling real-time, on-site access
to supplementary information. Companies can also
derive great value from augmented reality, as a means
of providing visual instructions to workers on-site,
particularly those engaged in O&M work.

EXAMPLE: Arups approach to knowledge management is


regarded as one of the most advanced in the E&C industry.
The companys resources include:
(i) a system for capturing lessons learned on projects and
for accessing key project data
(ii) a comprehensive BIM library with more than 25,000
objects
(iii) virtual communities that globally link employees who
work on different projects but face similar problems
(iv) various facilitation techniques to encourage knowledge
sharing (for example, Arup university lectures, workshops
and story-telling events)

38 Shaping the Future of Construction: A Breakthrough in Mindset and Technology


though no less important, to create an effective Incentivize desired behaviours. Establish incentive
organizational design that reinforces a common schemes and related measures to reinforce engagement
company culture and supports strategic objectives. In and affiliation and to drive behavioural change:
optimizing the organizational design, E&C managers (i) Motivate value-maximizing behaviour, aligned with
should consider taking the following measures: business objectives (for example, reward over-
(i) Align the organizational design with individual fulfilment instead of bare fulfilment of time/
capabilities and roles, accountabilities and budget targets); make sure that individual, project-
collaboration based performance goals are in line with overall
(ii) Define appropriate structures and operating models company aims; establish an effective accountability
for corporate, support and project functions; system; build self-esteem, morale and a sense of
choose the appropriate structure (notably sector, belonging
regional or matrix perspectives), carefully aligned (ii) Implement recognition programmes that publicly
with strategic goals; define clearly the role of the acknowledge and reward employees for innovation,
centre, and pursue the solution that is best for the desired behaviours (such as knowledge sharing),
company rather than for the project (for instance, or outstanding achievements (for instance, a Work
apply frame contacts more rigorously) Crew of the Year award, decided by peers)
(iii) Streamline the organization (by de-layering, (iii) Offer management-development programmes that
for instance) and optimize work dynamics (for focus on culture, as well as targeted mentorship
example, by applying lean principles); develop programmes to transmit desirable values
hybrid organizational solutions offering the best EXAMPLE: To engage employees in improvement and
of both worlds (centralized vs decentralized) and innovation, Skanska has implemented several initiatives,
finding a compromise between scale and efficiency, including a consultation forum for front-line workers, a
while maintaining a business focus (for instance, a dialogue week on safety issues and a mobile app for
centralized organization for megaprojects, such as submitting ideas for improvement.
nuclear power stations, requiring global expertise vs
a decentralized organization for municipally-driven
local projects, such as water supplies)
(iv) Break down silos: reduce cultural differences
between different parts of the organization, and
ensure that staff of newly acquired companies are
properly integrated

Shaping the Future of Construction: A Breakthrough in Mindset and Technology 39


3. The Industry As a Whole Needs to Drive
Transformation

3.1 Industry collaboration systems such as BIM and Geographic Information


Systems.
(ii) Standard interfaces between prefabricated modules
Mutual consent on standards across the and components will enhance system compatibility,
industry provide economies of scale for suppliers, act as a
Standards are desirable for different reasons. Adherence powerful productivity driver and thus accelerate the
to standards helps to ensure that products are safe, industrialization of the sector.
interoperable and good for the environment. Harmonizing (iii) The standardized definition of costs, classifications
technical specifications of products and services can make and measurements along the whole life cycle will
industries more efficient, and can break down barriers to lead to greater comparability and compatibility
trade. For instance, the Transatlantic Trade and Investment among projects.
Partnership, a proposed trade agreement between the (iv) Standards in legal arrangements, such as alliances
European Union (EU) and the United States, aims at and IPD contracts, will reduce initial costs and pre-
promoting trade and multilateral economic growth by empt legal complications for individual companies.
harmonizing differing standards and regulations.
EXAMPLE: The DGNB90 (German Sustainable Building
The construction industry lacks robust global arrangements Council), an organization concentrating on sustainable
on standards. As a result, it has forfeited the productivity construction, with members along the value chain, has
gains that a proper modernization of the industry would developed certification schemes that provide a uniform
have brought. And it could in future forfeit the potential basis for evaluating the planning, construction and
inherent in digital technologies: if it remains such a operations of sustainable buildings.
fragmented industry, unable to agree on internal standards,
EXAMPLE: Australia is pioneering the standardization
it is hardly likely to have much influence in determining
of project alliance agreements to reduce the initial costs
cross-industry standards. The E&C sector as a whole should
involved in establishing these agreements.91
take concerted action, along the following lines:
Shape the agenda. To define and set standards across
Affiliate and organize. For E&C companies it already different industries is a complex, multidimensional
means a great deal to establish standards within their endeavour, involving multiple and sometimes competing
companies when working on different projects with a interests. Standard-setting organizations are established
single client, and even more when working on different for industries or specific topics, nationally, regionally
projects across different clients or even industries. or globally. The E&C sector has to make sure that
E&C companies should strive to form organizations, it is represented in the relevant industry bodies and
representing all stakeholders along the value chain, at a consortia, and can make its voice heard and drive the
national, international or even global level. They should agenda.
also make sure that relevant experts (from academia, EXAMPLE: Atkins is providing a convenor for an ISO
for instance) are represented, and that the organizations Steering Group (with members from private construction
are large enough and varied enough to truly represent companies, government and academia) advising
the interests of the sector as a whole. on industry standards for information management,
Identify key standardization topics and develop a specifically on the use of BIM during the construction
common stance. Given the huge potential for improving phase of projects.
collaboration among the different stakeholders in
construction projects, it is vital that companies act in In many cases, industry standards are referred to in
concert, and that all the stakeholders are on board and regulatory frameworks, either directly or indirectly, and they
speak with one voice. The industry as a whole should are sometimes incorporated into national building codes.
define key areas to work on and should agree on a For this reason, the industry must strive to set optimal
common perspective: standards ahead of regulation, so that it can shape the
(i) Standards in software systems, interfaces public agenda.
and communication protocols will facilitate the
digitalization of the industry as a whole: in particular,
companies should establish standards in machine
code for robots and automated construction
equipment, and in interfaces between different
40 Shaping the Future of Construction: A Breakthrough in Mindset and Technology
More data exchange, benchmarking and best- EXAMPLE: In late 2014, the German Association for the
practice sharing Construction Industry established the initiative Planen und
Bauen 4.0, involving various industry associations, such
In the past, proprietary knowledge was the key differentiator as those of architects, machinery suppliers and real estate.
of companies in many industries. Now, the pressure The aim was to create a national centre of competence
is increasingly on companies to join forces with other and a communication partner for research, advice on
companies to create new products and services in an regulation and market implementation. The initiative, with
increasingly complex world. That applies especially to its multistakeholder cross-industry approach, should take
fragmented industries such as E&C, with so many facets a trailblazing role in the implementation of BIM and other
and challenges. But it is not so easy to put this imperative digital innovations in the German construction industry.
into practice.
More specifically, great benefit can be had from creating
To promote partnerships or even informal sharing among permanent industry-wide bodies or institutions involving
individual companies, a large-scale, even global, effort is all participants along the value chain. Such entities
needed. Increased knowledge sharing among peers can would stimulate collaboration and foster horizontal and
help to close the gap between technological development vertical linkages, and would establish common rules
and application. For this purpose, the industry should and frameworks in an unbiased way. They could also
establish a platform perhaps a formal association incorporate trade associations (which currently tend to focus
comprising top E&C firms across all regions. That platform, on transactional issues within their own technical specialist
from its neutral and respected position, could encourage silos), interest groups, academics, and local associations
the regular sharing of best practices, benchmarking across and trades.
peers, and could optimize data by ensuring its availability,
comparability and protection. If offered the right incentives, EXAMPLE: Desso (a Tarkett company) works closely
companies will readily share knowledge and advice. with one of its yarn suppliers, which turns recovered post-
consumer carpet fibres into new yarn. The two companies
EXAMPLE: The Construction Industry Institute in the have shared their experiences within the Circular Economy
United States collects best-practice insights and makes 100 network an innovation programme bringing together
them available to its members; topics range from partnering companies, governments, cities and academic institutions
models to project planning and constructability. in an effort to inspire circular-economy thinking among other
companies.
The benefits of many technological advances, such as BIM,
will materialize only if the whole ecosystem is ready, but EXAMPLE: The Canadian Construction Association, the
investments have to be made on an individual company national voice for the construction industry in Canada,
level, of course. As a consequence, first movers are at risk, represents more than 20,000 member firms in an integrated
yet if nobody dares to move, the industry as a whole will be structure of about 70 local and provincial associations. Its
the loser. To break this vicious circle and avoid stagnation, Lean Construction Institute, founded in 2015, provides
the industry needs to agree on common targets. A joint a platform for all supply-chain participants owners,
effort based on shared commitments on deploying new designers, contractors, traders and allied services to
technologies, for instance could help to reduce the risk collaborate on the development and application of lean tools
for individual companies and provide an opportunity for an and techniques along the building life cycle.
industry-wide boost.

Bear in mind that all forms of collaboration between


companies have to take appropriate precautions against
violating antitrust or competition legislation. It is the
companies responsibility to ensure that the government
authorities or the courts do not interpret cooperation as
conspiracy.

Cross-industry collaboration along the value


chain
Better collaboration is needed not just between peer
companies but also between companies of different types
along the value chain. The current tendency is to push risk
down the value chain instead of pulling innovations out of it.
A good way to encourage cross-industry collaboration
among companies along the value chain is through
industry-wide initiatives, such as joint R&D efforts and
data-generation projects. Platforms could be established
to facilitate knowledge exchange across the value chain,
and to align perspectives on design, construction and
operations. And measures should be introduced to enable
independent certification and quality assurance, and thereby
accelerate the adoption of new technologies. Shaping the Future of Construction: A Breakthrough in Mindset and Technology 41
3.2 Joint industry marketing Infrastructure projects can provoke public disapproval in
various ways. Many projects have a very disruptive impact
on the local community despite their acknowledged
Industry-wide collaboration on employer advantages for wider society. And the public tend to object
marketing when projects exceed their budgets or schedules, especially
In an industry where women constitute just 9% of the when national debt rates and austerity measures are on the
workforce and where employee turnover will be an increase.
estimated 33% in the next 10 years both values at the
extreme, relative to other industries a joint marketing effort So companies would be well advised to engage the
by employers is seriously needed.92 The objectives are to community early on, and continue that engagement
persuade young people to pursue a career in construction, throughout. During the planning process, for example, they
to challenge preconceptions about working in construction should arrange formal consultations with the community
and to demonstrate the variety of career options and entry as part of their environmental-impact and social-impact
routes. assessments. Such consultations will help to ease local
anxieties, and also to fine-tune the design of the project
Ideally, formal centralized organizations would be set and reduce inconvenience during the construction period:
up, to pool the respective competencies of construction well-planned route management, for instance, will make
companies and align marketing efforts across the industry. diverted traffic more bearable for local residents. In general,
The organizations would get all member companies to companies need to maintain a strong communications
adopt a uniform stance and become involved in creating strategy. During the planning period, and throughout the
a consistent image of the construction industry. An active construction phase, project developers should keep the
and wide-ranging communication effort would convey that local community fully informed on progress and potential
consistent image to target groups, via marketing campaigns impacts to satisfy curiosity, allay fears and even rally public
using multiple channels. support for the project.

EXAMPLE: The Construction Industry Training Board, a EXAMPLE: The redevelopment of Viennas main station
centralized organization representing the interests of the was supported by the Infobox, Europes highest wooden
construction industry in the United Kingdom, initiated a tower. It became a magnet for visitors, and hence a fertile
comprehensive marketing campaign called goconstruct.org. venue for circulating details of the projects goals, progress
The website provides details on qualification requirements, and long-term advantages.
job opportunities and salaries; a video provides several job
profiles and information; and a full advertising campaign Engagement with the community should not end when
disseminates information on the sides of buses, on the construction phase ends. Ongoing public support for
billboards and in phone booths. the infrastructure asset is crucial, and cannot be taken
for granted. During the operations phase, various public
relations and educational measures are possible, such as
Coordinated communication with civil society93 guided tours in ports and viewing decks in airports.
Figure 16: An Approach to Regulatory Engagement
The E&C sector will also need to engage constructively with
the public at large. Thus individual companies should adopt
best practices regarding construction sites, should protect
Figure 16: An Approach to Regulatory Engagement94
communities and the environment and should secure
everyones safety.
Continuous monitoring of relevant
EXAMPLE: The Considerate Constructors Scheme a
developments in society and politics
non-profit organization founded by the United Kingdom
construction industry to improve its image addresses
concerns relating to the general public, the workforce and
In the case of major changes:
the environment. It has established a Code of Considerate
Practice to guide the behaviour of its members.
Unbiased Development Development
The main influence on peoples perception of the industry, analysis of of target of advocacy
however, is their personal experience of construction the situation regulation strategy
projects or assets. By involving the affected communities
Study of Derivation of Advocacy
throughout the assets life cycle from planning and underlying implications strategy towards
construction through to operating the asset companies societal trends of scenarios the target scenario
can sustainably enhance the image and reduce the
Understanding Development Identification of
likelihood of political intervention, particularly in infrastructure
of political of a realistic partners,
projects. In most cases, infrastructure projects are extremely stakeholders vision of possibly pursuing
beneficial for the wider society, and all stakeholders have interests regulation from a multistakeholder
a common interest in seeing this message communicated the industry approach
Scenario
effectively. analysis
point of view

Source: World Economic Forum; The Boston Consulting Group


Source: World Economic Forum; Boston Consulting Group
42 Shaping the Future of Construction: A Breakthrough in Mindset and Technology
Effective interaction with the public sector performance of the wider economy.95 It has set out a vision
and a plan for long-term strategic action by government and
Companies should also take steps to engage constructively industry: they are to continue working together, especially on
with the public sector to avoid misunderstandings, discuss smart technologies, green construction and overseas trade.
the impact of regulations and ensure good relations. Figure
16 outlines one approach to regulatory engagement. Once again, effective communication between the two
sides is crucial.96 The industry needs a well-designed
The advocacy strategy is especially important as a communication initiative for each phase in the life cycle
counterweight to the regulatory regime, which is always of an infrastructure project. During bidding and contract
subject to change at a national or even international level. negotiations, for example, companies should refuse to
Ideally, the industry would engage in joint initiatives with give any misleading information, even if such information is
government, working closely together towards the common requested by the public-sector representatives. During the
goal of taking the industry forward. construction phase, the contracted company should be
open and proactive in reporting progress or problems to the
EXAMPLE: Construction 2025 is a partnership in the United public-sector agency. And ideally, the company will employ
Kingdom between E&C and government to transform the a high-level individual as the dedicated point of contact, to
industry by optimizing the relationship between private build trusting relationships and resolve issues promptly.
companies and public authorities. E&C is acknowledged
as an enabling sector having a massive impact on the

Shaping the Future of Construction: A Breakthrough in Mindset and Technology 43


4. Government Needs to Encourage and
Support this Transformation

4.1 Regulation and policies Implement outcome-oriented standards where


appropriate. Performance-based building codes are an
As a regulator and policy-maker, a national government effective means to encourage innovation in construction
can influence the E&C industry in various ways. Primarily, techniques and materials. The codes specify the
it acts as a warden of health, safety and environmental performance standards that a building must abide
conditions in and around construction, and it should by, rather than specifying the ways of achieving those
perform this task as efficiently as possible to mitigate standards. The codes do involve a cost: to maintain
adverse effects on productivity. It also impacts on firms control, it is imperative to ensure the adequacy of every
strategies and operational practices by preventing or single design and construction path selected. This
supporting competition nationally and internationally. And can be an intricate task, especially if there are a great
it can influence the speed and direction of technology many alternatives and if their performance is difficult to
development and diffusion. measure.
EXAMPLE: New Zealands building code is exclusively
Harmonized building codes/standards and performance-based. For example, it prescribes that
efficient permit processes in the event of fire, the evacuation time must allow
occupants of a building to move to a place of safety
Smart regulation is the key: it ensures that standards without being exposed to a fractional effective dose of
are met in an efficient and effective way. In addition, the carbon monoxide greater than 0.3.97
regulatory framework should leave room for technological
progress and should anticipate emerging needs. To
achieve these objectives, it is crucial to have well-designed
building codes and standards, as well as transparent and
streamlined permit processes.

Regarding building codes and standards, the following best


practices stand out:

Strive for more uniform regulations. Multiple overlapping


or highly fragmented standards can cause builders and
local authorities to become confused. This results in
delays, uncertainty and disputes. To reduce complexity,
it is therefore crucial to harmonize building codes and
standards at a national (or international) level, while at
the same time taking into account location-specific
requirements concerning geography, climate and
traditional building practices. For efficient application,
building codes and standards should also be easily
accessible; ideally, they should be freely available online
and through electronic devices.
EXAMPLE: The Eurocode initiative harmonized
methodologies for design and calculation for
construction projects in the EU, though specific rules
and detailed standards still remain at the national level.
Update provisions regularly. Building codes and
standards need to be adaptable and up-to-
date to appropriately reflect economic, societal
and technological change. This regular updating
is particularly important in the light of growing
environmental concerns and the emergence of new
digital tools such as BIM.

44 Shaping the Future of Construction: A Breakthrough in Mindset and Technology


Construction-permit processes are a major source of project Digitize construction permits. A proficient deployment
uncertainty and delay in many countries. A government can of IT not only reduces the costs of approval processes,
apply measures such as these to improve efficiency: but also enables regulators and practitioners to cope
with increasingly complex building standards and
Make approvals more convenient and faster for additional policy objectives (such as those related to
builders. Building plans often need to be approved by energy efficiency). Particularly promising in this context
multiple different agencies. To coordinate their efforts is the development of BIM-based software tools that are
better, and to increase the speed and convenience for capable of automating the verification of building-code
permit seekers, regulators should strive to ease any compliance.
bottlenecks and reduce bureaucracy associated with EXAMPLE: In the United States, advanced e-permit
processes. For example, they could establish single- systems and mobile inspection technology have
window systems and one-stop centres that combine reduced approval times by 30% and the number of
the required competencies under a single roof and required on-site inspections by 25%.
commit to specific timelines for approval.
Differentiate approvals by risk. Different assets vary in Finally, governments should establish appropriate control
their social, economic and environmental impact. Simple mechanisms and sanctions to help enforce their statutory
or low-risk projects require fewer checks and can be provisions, and thereby better protect public health, improve
approved faster than more complex structures. Effective safety and safeguard the environment. In many developing
regulations therefore involve rigorous yet differentiated countries, 60-80% of buildings (generally referred to as
approval processes, which treat buildings according to informal housing) continue to evade any form of building-
their risk level. related controls, which imposes significant risks and costs
EXAMPLE: The European standard defines three on the community.98 The problem arises in developed
Consequence Classes based on parameters such as countries, too: in the United States, the team assessing the
size, construction method and final use. Each building aftermath of Hurricane Katrina concluded that a major cause
category lists recommended interactions with the of the amount and magnitude of damage to buildings along
authorities, including fast-track approval procedures for the coast was, in fact, non-compliance with the building
low-risk buildings. code. Strict implementation can pay off financially: a task
force led by the Institute for Market Transformation found
that every dollar spent on strengthening building-energy-
code compliance and enforcement efforts will return six
dollars in energy savings.99

Market openness to international firms and


small and medium-sized enterprises
Market openness to foreign firms stimulates trade as well
as the movement of capital, technology and skills across
the global E&C sector. It also increases the opportunity for
economies of scale and scope, and for specialization of
firms two important sources of competitiveness.

Most countries have now removed legal bans on the


operations of non-domestic companies, but there are still
some other, equally effective barriers to foreign market
entry that restrict international competition. Among the
most prevalent impediments are tariffs and duties (such
as fees for imported construction services); an insufficient
recognition of foreign professionals qualifications; and strict
capital requirements for foreign firms (for instance, financial
reserves that cannot be used during the duration of the
project). All of these barriers need to gradually be eliminated
by national governments; only then can the fully open,
global E&C market become a reality.

EXAMPLE: Within its Construction 2020 initiative, the


European Commission plans to take action in three
main areas to enhance international competition: a more
open trade in building materials; a more straightforward
recognition of the qualifications of foreign architects; and
support services for EU-wide operations of small and
medium-sized construction companies.

Shaping the Future of Construction: A Breakthrough in Mindset and Technology 45


In addition, public procurement has traditionally inhibited EXAMPLE: In 2015, the US Federal Highway Administration
foreign companies market entry particularly because provided through multiple schemes funding of almost
governments have often tended to favour their domestic $500 million for hundreds of research projects related to
industry when awarding contracts. Local implementation improving the design, construction and operation of roads,
of multinational agreements, such as the Agreement on tunnels and bridges.
Government Procurement within the framework of the
World Trade Organization, can help to liberalize government Promoting R&D is just the first step: technological advances
procurement markets. Such agreements establish rules that realize their full potential only when they are widely
require less discriminatory and more competitive forms of adopted across the industry.102 In a highly fragmented,
tendering among participating countries. multistakeholder industry such as E&C, it is therefore equally
important to foster the diffusion of innovations, by such
EXAMPLE: Brazil a non-signatory to the Agreement steps as these:
on Government Procurement and historically a relatively
closed construction market has recently launched Providing financial support for demonstration projects
an infrastructure investment programme that explicitly involving new technologies and processes
encourages international participation. All infrastructure Setting up incentive schemes for innovation deployment
concessions of this programme are open to foreign firms, and capability development
while airport concessions actually require the participation of
foreign airport operators.
EXAMPLE: Singapore, through its Construction Productivity
and Capability Fund, partly reimburses the cost for:
In addition to international market openness, regulators
(i) BIM software/hardware, consultancy and training
should promote diversity and competition in the local
construction sector by encouraging participation from a (ii) equipment and machines that improve productivity
broad variety of small and medium-sized enterprises (SMEs). by at least 30%
In this regard, local authorities could take the following (iii) development projects featuring process innovations
measures:
Finally, project managers and the entire construction
Put in place a simplified licensing system for SMEs workforce need to be upskilled appropriately with regard
(such as the one recently introduced in Indonesia)100 to new technologies and processes. A government can
Promote the formation of alliances between support workforce education through the following policy
international, national and local construction firms measures:
Provide financial support for SMEs in E&C (such as
partial risk cover for SME loan portfolios) Offer training programmes at job centres and in
cooperation with companies
Ensure equal treatment of SMEs in public-sector
tenders, particularly by reducing the bureaucratic Implement effective and leading-edge curricula in
burden of procurement universities, technical colleges and apprenticeship
schemes
Enhance the attractiveness of E&C professions through
Promotion and funding of R&D, technological
image campaigns
adoption and education
Given the economic significance of the construction sector, EXAMPLE: The EU-wide construction-sector initiative
R&D investments among E&C companies are surprisingly BUILD UP Skills provides a joint platform for national
small. In fact, the 2014 EU Industrial R&D Investment programmes and projects aimed at training and educating
Scoreboard ranks construction among the least R&D- the current and future construction workforce on energy
intensive sectors, with a mere 1% of net revenues allocated efficiency and renewable energy.
to R&D.101

National governments can create a more fertile environment


for developing technological innovations by providing
appropriate support to companies and academia. In
particular, they could take the following steps:

Establish centrally funded research institutions and joint


industry-academia funds and technology centres
Provide venture capital for E&C-related start-ups
Offer tax incentives and establish schemes for
contested R&D funding (by open competitive tendering,
for instance)

46 Shaping the Future of Construction: A Breakthrough in Mindset and Technology


4.2 Public procurement Finally, the public-sector project pipeline should be attractive
to potential bidders. This attractiveness can be enhanced
In addition to its role as regulator, the public sector also through such measures as these:
has an immense impact on E&C through its role as project
owner. Government procurement accounts for a major Ensure visibility of the forward pipeline to help providers
share of total construction expenditures worldwide: for respond to market opportunities and ensure a stable
example, 31% in the United Kingdom, 44% in Germany and project pipeline over time
a staggering 57% in the United States.103 Provide a clearly defined bidding model and information-
rich tenders
As the E&C industrys most important client, governments Offer SMEs training on public procurement procedures
need to actively manage and coordinate public-sector
Provide dedicated, continuous funding, ideally through a
demand, and thereby drive industry change. It is also their
public fund
duty to prevent corruption in the system, in order to promote
efficiency in procurement and provide equal opportunities for
bidders. The more progressive governments have started to EXAMPLE: The United Kingdom recently launched several
reform procurement and are adjusting bidding requirements initiatives relating to the management of the public-sector
and processes to stimulate innovation and whole-life-cycle project pipeline. To mention just a few:
optimization. (i) Project pipelines for 19 sectors are being published
online and updated every six months to create a level
playing field for providers of any size.
Actively managed and staged project pipelines
with reliable funding (ii) Cost benchmarking of construction projects across
departments now provides a solid baseline for cost-led
Given the sheer size and complexity of the public-sector procurement.
project pipeline, its active management is a challenging (iii) The Major Projects Leadership Academy, in cooperation
task, and one that is often badly neglected. Ideally, a with the Sad Business School, has been established
government defines and implements a holistic strategy to to enhance project-management skills and capabilities
optimize procurement along several dimensions notably, across government.
the composition of the project portfolio, the governance of
procurement activities and the attractiveness of the project
pipeline to potential bidders. Strict implementation of transparency and
anti-corruption standards
When it comes to compiling the public-sector project Bribery and corruption exist in all industries but, in E&C-
portfolio, multiple objectives (conflicting to some extent) related procurement, collusions between government staff
need to be aligned. For an optimal prioritization of projects, and bidders are particularly common, even in developed
it is crucial to first develop a strategic procurement plan. countries. A study prepared for the European Commission,
Such a plan provides guidance for the required cost- examining 192 public procurement projects in eight EU
benefit analyses at the project level, and helps to reconcile countries, found a probability of corruption of 9-21% in the
economic considerations and industrial, social and road and rail sector, 28-43% in water and waste, and 37-
environmental targets. Once a project has been chosen, the 53% in urban or utility construction.104 Corruption drives up
procuring authorities should focus on maximizing efficiency procurement cost substantially, by an estimated 1.3-1.9
in the acquisition of goods and services for example, by billion per year, in the eight countries studied.
choosing smart delivery mechanisms and by implementing
rigorous evaluation and benchmarking processes both To ensure integrity in public contracting and thereby
within and across departments. promote efficiency and fairness towards bidders,
governments need to rigorously implement comprehensive
A more effective governance of public procurement can be anti-corruption and transparency frameworks. These efforts
achieved through the following measures: should address all stakeholders along the value chain, and
should include the following measures:
Put in place clear organizational structures and
operating models for planning and execution Create a corruption-resilient procurement environment
Assign task forces to drive high-priority projects
Apply lean principles to public procurement for Generally, implement laws, institutions and practices for
example, by appointing process owners and specifying preventing corruption in line with international standards
cycle and lead times (for instance, the United Nations Convention against
Equip government teams with the appropriate skills and Corruption and the OECD Anti-Bribery Convention);
tools to function as an intelligent client join integrity pacts, such as the Partnering Against
Corruption Initiative led by the World Economic Forum
Ensure that procuring authorities and tenderers commit
beforehand to anti-corruption
Offer anti-corruption training courses and foster
knowledge sharing across procurement departments to
create a transparent culture aware of corruption risks

Shaping the Future of Construction: A Breakthrough in Mindset and Technology 47


Implement operational best practices, such as job and construction performance, a government should first
rotation and screening of pre-employment history, to review the asset and process specifications in light of
ensure the integrity of procurement departments and newly available technology and materials, as well as other
staff procurement objectives such as total-life-cycle cost and
sustainability.
Implement fair and transparent procurement procedures
On the basis of that assessment, several steps can be taken
Establish clear procedures so that all parties are equally to create the right incentives for bidders:
aware of project dimensions, criteria for evaluation, and
the timeline and stages of the procurement process Introduce more flexible bidding and contracting models
with improved risk sharing, such as DB and PPPs
Ensure that evaluators act independently from tenderers
(by engaging probity auditors, for example) EXAMPLE: Seattles largest water-treatment facility,
which provides 70% of the citys drinking water, was
Enhance transparency by making all details of the
procured on the basis of a design-build-operate
procurement process and the results available to the
contract. That produced cost savings of 30% relative
public (via social networks and video streaming, for
to the citys initial estimate and enabled state-of-the-art
instance)
water-treatment technology that had previously been
inaccessible to the public sector.
EXAMPLE: The Construction Sector Transparency (CoST)
Engage in performance-based procurement (including
initiative is a partnership between participating countries
such factors as sustainability criteria)
and international stakeholders, designed to enhance
the accountability of procuring bodies and construction Integrate TCO and life-cycle costing into bidding
companies for the cost and quality of public-sector requirements, and link operator payments to KPIs
construction projects through a standardized public- EXAMPLE: An EU Directive, in force since February
disclosure process. The disclosure includes comprehensive 2014, allows the procurement of projects on the
information about the project at different points in its life basis of cost-effectiveness throughout their whole life
cycle, as well as justifications for any significant deviations cycle. This reflects a shift towards longer-term, holistic
from budget and schedule. A CoST pilot in Ethiopia, for thinking, and a shift away from a focus on initial cost.
example, showed that public-sector projects exceeded Require that answers to requests for proposals make
their cost targets by more than 50% and their time targets reference to new technologies and building materials
by more than 100%. As a result, departments have now
EXAMPLE: The United Kingdom requires the use of
committed to ensuring greater compliance with procurement
fully collaborative 3D BIM (with all project and asset
regulations and to performing feasibility studies for any
information, documentation and data being electronic)
major project.
on government projects by 2016.
Establish clear practices regarding the prosecution of Ensure compliance with labour standards; for example,
corruption ensure that the work is carried out in a safe physical
environment, in conditions that respect workers rights
Introduce national and international laws aimed at as defined in national laws and international conventions
punishing corruption EXAMPLE: In the International Labour Organization
Perform proper screening of contractors and suppliers, Declaration of Fundamental Principles and Rights at
including the possibility of blacklisting Work, core labour standards are defined, covering four
areas:
Conduct regular and independent audits based on the
data provided during the procurement process (i) elimination of forced or compulsory labour
Collaborate with independent investigation agencies (ii) elimination of child labour
(iii) elimination of discrimination in respect of
employment and occupation
Innovation-friendly and whole-life-cycle-
oriented procurement (iv) freedom of association and the effective recognition
of the right to organize and the right to collective
Traditionally, public procurement has largely relied on bargaining
design-bid-build schemes with a strong tendency towards
the lowest bid. This focus on initial construction costs not
only neglected the total cost of ownership, but also seriously
inhibited innovation and productivity improvements. The
traditional approach is gradually being replaced, however,
as governments start to see the merits of DB and PPP,
and introduce more flexible and outcome-oriented bidding
requirements. The new procurement models are being
used in numerous major public-sector projects worldwide
including Crossrail, one of the worlds largest infrastructure
projects.

To improve bidding schemes in respect of innovation


48 Shaping the Future of Construction: A Breakthrough in Mindset and Technology
5. The Way Forward

Figure 17: Importance of Different Transformation Areas for the


E&C Industry
Figure 22: Importance of Different Transformation Areas for the
The E&C sector will remainE&C Industry
a cornerstone of the worlds Figure 17: Importance of Different Transformation Areas
economy and of almost all other industries, since they for the E&C Industry
rely so heavily on buildings or infrastructure assets. It will
Transformation areas
continue to define our daily lives in so many ways, because
our homes, our workplaces and the means of travelling 1 3 5

between them are all components of the built environment.


1 People unimportant 4.6 important

E&C has been far slower than many other industries 2 Adoption of new technol-
unimportant 4.5 important
to adopt new technology and is only now beginning to ogies, materials and tools

undergo a modern transformation. Its labour productivity, 3 Industry collaboration unimportant 4.2 important
static for decades, is on the increase at last, and should
surge once the new digital technologies are more widely 4 Business models unimportant 4.1 important
adopted.105 The industry has also been slow to adapt its
business strategies, but companies are now starting to 5 Corporate strategies unimportant 4.0 important

pay more attention to a buildings total life-cycle cost, for


6 Maturity of business
instance, and to be more amenable to partnering with processes
unimportant 4.0 important

other companies. Project owners and investors will have an 7 Maturity of construction
unimportant 4.0 important
important part to play here. operations

8 Corporate cultures unimportant 3.8 important


The new era in construction will bring great benefits: for
the wider society, by reducing construction costs and 9 Corporate organizations unimportant 3.7 important
adverse social effects; for the environment, by improving the
efficient use of scarce materials or by reducing the adverse 10 Creation of intellectual
unimportant 3.6 important
property
environmental impact of buildings over time; and for the
Source: Future of Construction Survey; World Economic Forum;
economy, by narrowing the global infrastructure gap and The Boston Consulting Group
boosting economic development in general. This potential Source: Future of Construction Survey; World Economic Forum; Boston Consulting Group

will blossom very soon, and very dramatically. In fact,


The industry as a whole should enhance coordination and
profound changes are already taking place, though not yet
WEF-constr-full-edit23-mar16.pptx cooperation across the value chain, and agree on common
on a sufficiently wide scale. More remains to be done. goals and standards. And to gain the support of society at
large, the industry again needs to work collectively with all
Imperative for action stakeholders, along multiple dimensions.
All stakeholders along the value chain individual
The government, finally both as regulator and often as
companies, the industry as a whole (and associated experts key project owner should create a fertile environment for
in civil society and academia) and governments should the transformation of the E&C sector. High-profile projects,
take action to move the industry forward. such as Crossrail in the United Kingdom, show how public
projects can spread and speed up the adoption of new
Private companies should actively shape the transformation. technologies throughout the industry.
For their own purposes, they should assess the
opportunities inherent in the new technologies and Many of the issues and challenges are common across
materials, and then adjust their processes, operations and the construction industry, but overall the industry remains
even business models accordingly. If companies structure very diverse and fragmented. Companies have very varied
their organization optimally, they stand the best chance of circumstances and starting points, according to their
region, the sector they are active in and their size. So the
success when implementing the opportunities on a large
numerous developments and measures discussed in this
scale. The transformation areas of the E&C industry, ranked report, even though described holistically as parts of a single
according to their importance, are listed in Figure 17, based transformation framework, will not all be equally relevant
on a survey conducted as part of the Future of Construction to any particular company. Companies have to choose
project. the innovations and action areas that best suit their own
ambitions and their clients needs. Provided they do choose
wisely and pursue the choices actively and astutely they
should secure their own future, and ensure a flourishing and
exciting future for the entire industry that they represent.

Shaping the Future of Construction: A Breakthrough in Mindset and Technology 49


Abbreviations

ABM Advanced Building Material


B20 Business 20
BIM Building Information Modelling
CAGR Compound Average Growth Rate
CoST Construction Sector Transparency
DB Design-Build
DfMA Design for Manufacture and Assembly
DGNB Deutsche Gesellschaft fr Nachhaltiges Bauen e.V. (German
Sustainable Building Council)
E&C Engineering and Construction
ECI Early Contractor Involvement
EU European Union
GDP Gross Domestic Product
HSE Health, Safety and Environment
IoT Internet of Things
IPD Integrated Project Delivery
ISO International Organization for Standardization
IT Information Technology
KPI Key Performance Indicator
NASA National Aeronautics and Space Administration (USA)
O&M Operations and Maintenance
OECD Organisation for Economic Co-operation and Development
OSH Occupational Safety and Health
PPP Public-Private Partnership
R&D Research and Development
RFID Radio Frequency Identification
SME Small and Medium-Sized Enterprise
TCO Total Cost of Ownership
UN United Nations
UN DESA United Nations Department of Economic and Social Affairs
UNEP United Nations Environment Programme
UNEP DTIE UNEP Division of Technology, Industry and Economics
UNEP SBCI UNEP Sustainable Buildings and Climate Initiative
USACE US Army Corps of Engineers

50 Shaping the Future of Construction: A Breakthrough in Mindset and Technology


Appendix: Future of Construction Survey Results

For the World Economic Forum survey on the Future At a sector level, particularly on 3.1. Industry
of Construction, approximately 50 Steering & Advisory collaboration; and 3.2. Joint industry marketing
Committee Members, as well as selected industry At a national level, regarding governments role in 4.1.
experts, were approach to answer questions about the Regulation and policies; and 4.2. Public procurement
current state of the industry and its key challenges. A
total of 30 participants completed the survey, mainly from
Second, the likelihood and impact of promising
organizations with a global footprint.
technologies, materials and tools on the E&C industry was
assessed.
First, the industrys performance in fostering a
transformation in the E&C industry was assessed at various
Third, the importance and the impact of several megatrends
levels:
on the E&C industry was examined.
At a company level, specifically on 2.1. Technology,
Fourth, the most important transformation areas of the E&C
materials and tools; 2.2. Processes and operations;
industry were identified.
2.3. Strategy and business model innovation; and 2.4.
People, organization and culture
Selected results of the survey are presented below.
Figure 18: Composition of the Survey Participants [in total 4 graphs]
Figure 18: Composition of the Survey Participants

Geographical focus of Sector focus of


participants organization participants organization1

0% 20% 40% 60% 80% 0% 20% 40% 60% 80%

Several continents/ Engineering &


67% 30%
global Construction consulting

Mainly 15% Engineering &


North America 23%
Construction

Mainly 7%
Europe Design & Architecture 20%

Mainly 7% Other private sector 17%


Figure 18: cont'd Composition of the Survey Participants [in total 4
Asia

graphs] Mainly National agencies/


4% 17%
Africa ministries

Size of participants Revenue of


1 Multiple organization (employees)
answers were possible
participants organization
Source: Future of Construction Survey

0% 20% 40% 60% 80%


0% 20% 40% 60% 80%

> 5,000 81% Above $5 billion 50%

WEF-constr-full-edit23-mar16.pptx 16
1,001-5,000 7% $15 billion 27%

11-1,000 7% $0.51 billion 4%

Up to 10 4% $100500 million 4%

Up to $100 million 4%

1
Multiple answers were possible 12%
N/A
Source: Future of Construction Survey

Source: Future of Construction Survey Shaping the Future of Construction: A Breakthrough in Mindset and Technology 51
re 19: Perceived Performance of the E&C Industry and
ernment
Figure 19: Perceived Performance of the E&C Industry and Government

Perceived performance of the E&C industry

2.1 Technology, materials and tools 2.2 Processes and operations


Advanced building and 1 2 3 4 5 a) Front-loaded design 1 2 3 4 5
finishing materials very very b) Project planning very a) b) very
bad good bad good

Standardized, modu- 1 2 3 4 5 a) Collaboration with 1 2 3 4 5


larized and prefabri- very very project owner very a) b) very
cated components bad good b) Risk management bad good

(Semi-)automated 1 2 3 4 5 Collaboration with 1 2 3 4 5


construction equipment very very subcontractors and very very
bad good suppliers bad good

New construction 1 2 3 4 5 a) Project management 1 2 3 4 5


technologies very very b) Learning from project to very b) a) very
bad good project bad good
Company level

Smart and life-cycle- 1 2 3 4 5 Lean and safe 1 2 3 4 5


optimizing equipment construction manage-
Actors

very very very very


bad good ment and operations bad good

a) Digital technologies 1 b) 2 a) 3 4 5 Project monitoring 1 2 3 4 5


b) Big data very very (scope, time, cost) very very
bad good bad good

2.3 Strategy and business model innovation 2.4 People, organization and culture
Sustainable products with 1 2 3 4 5 Strategic workforce 1 2 3 4 5
optimal life-cycle value very very planning, smart hiring, very very
bad good enhanced retention bad good

Differentiated business 1 2 3 4 5 a) Continuous training and 1 2 3 4 5


re 19 cont'd: Current Performance of the E&C Industry and
model and targeted con- very
solidation and partnership bad
very
good
people development
b) Knowledge mgmt.
very
bad
b) a) very
good

ernment Internationalization
strategy to increase scale very
1 2 3 4 5
very
a) High-performance org. 1
b) Innovation-friendly and very b)
2
a)
3
c)
4 5
very
bad good forward-looking culture bad good
c) Incentive schemes

nstr-full-edit23-mar16.pptx

2.1 Industry
3.1 Technology, materials, and tools
collaboration 2.2 Joint
3.2 Processes andmarketing
industry operations
N/A 1 2 3 4 5 Industry-wide collabora- 1 2 3 4 5
tion on employer
Sector level

very very very very


bad good marketing bad good

a) Best-practice sharing 1 Coordinated communi-


b) Benchmarking and data very b) 2 a) 3 4 5
cation with civil society
1 2 3 4 5
very very very
exchange bad good bad good

Mutual consent on 1 2 3 4 5 Effective interaction with 1 2 3 4 5


standards across the very very the public sector very very
industry bad good bad good
Actors

Perceived performance of the government

4.1 Regulation and policies 4.2 Public procurement


a) Harmonized building 1 2 3 4 5 Strict implementation of 1 2 3 4 5
Government

codes/standards pre- b) a) sup- transparency/anti- pre- sup-


b) Permit processes ventive portive corruption standards ventive portive

Market openness to 1 2 3 4 5 a) Actively managed 1 2 3 4 5


international firms and pre- sup- project pipeline pre- a) b) sup-
SMEs ventive portive b) Project funding ventive portive

Promotion/funding of 1 2 3 4 5 a) Bidding requirements 1 2 3 4 5


R&D, technological b) Efficient and effective a) b)
pre- sup- pre- sup-
adoption and education ventive portive bidding process ventive portive

52 Shaping the Future of Construction: A Breakthrough in Mindset and Technology Source: Future of Construction Survey
Source: Future of Construction Survey
Figure 20: Future Impact and Likelihood of New Technologies

Source: Future of Construction Survey

Figure 21: Global Trends Their Importance for and Impact on the E&C Industry

Source: Future of Construction Survey

Shaping the Future of Construction: A Breakthrough in Mindset and Technology 53


nce of Different Transformation Areas for the
Figure 22: Importance of Different Transformation Areas for the E&C Industry

Transformation areas
1 3 5

1 People unimportant 4.6 important

2 Adoption of new technol-


unimportant 4.5 important
ogies, materials and tools

3 Industry collaboration unimportant 4.2 important

4 Business models unimportant 4.1 important

5 Corporate strategies unimportant 4.0 important

6 Maturity of business
unimportant 4.0 important
processes

7 Maturity of construction
unimportant 4.0 important
operations

8 Corporate cultures unimportant 3.8 important

9 Corporate organizations unimportant 3.7 important

10 Creation of intellectual
unimportant 3.6 important
property

Source: Future
Source: Future of Construction
of Construction Survey; WorldSurvey
Economic Forum; Boston Consulting Group

15

54 Shaping the Future of Construction: A Breakthrough in Mindset and Technology


Endnotes

1 See World Economic Forum, 2012; World Economic 12 This calculation is based on 2014 data from IHS,
Forum, 2013; World Economic Forum, 2014; and 2015; Oxford Economics Aggregates, 2015; and
World Economic Forum, 2015a. World Bank, 2015a.
2 The Boston Consulting Group, 2016a outlines the key 13 See Global Construction Perspectives and Oxford
technological developments and the potential impact Economics, 2013.
on and implications for key stakeholders. 14 This estimate applies specifically to public-sector
3 Very broadly, parametric design is a process investment into infrastructure. The effect is lower in
for designing objects by using a set of rules or emerging markets, because of the generally lower
parameters. efficiency there of public-sector investment. See
International Monetary Fund, 2014.
4 See The Boston Consulting Group, 2015a. In section
2.2, lean is described in detail. 15 See World Steel Association, 2015.
5 Kats, 2003 explains how an initial upfront investment 16 See Environmental and Energy Study Institute, 2014.
of $100,000 to incorporate green building features 17 The issues and opportunities of a circular economy
into a $5 million project could lead to savings of $1 are discussed extensively in, for instance, Ellen
million over the lifetime of the building. MacArthur Foundation and Fung Global Institute,
6 This issue is underlined by many items of disturbing 2014a; Ellen MacArthur Foundation, 2013; and Ellen
evidence. According to the Center for Construction MacArthur Foundation, 2014.
Research and Training (CPWR), 2013 for example, 18 See United Nations Environment Program, 2007.
the E&C sector in the United States has the lowest
share of working women among all industries, and 19 See Flyvbjerg, Bruzelius and Rothengatter, 2003.
the lowest share of workers with health insurance, 20 See World Economic Forum, 2015a.
employment-based pension plans and high school
diplomas among all non-agriculture industries. It 21 See UN Department of Economic and Social Affairs
also has the highest rate of projected employment Population Division, 2014 and United Nations Human
change and the highest number of fatalities among all Settlements Programme, 2014.
industries. The issue and its solutions are discussed 22 Particularly in fast-ageing countries such as Japan, a
more fully in sections 2.4 and 3.2. heavy push towards these technologies is under way.
7 See https://www.ccscheme.org.uk/. 23 For a view on the potentially negative impact that a
8 The German national initiative on energy transition, general workforce gap would have on national growth,
Energiewende, included a module focused see The Boston Consulting Group, 2014. The impact
on buildings, Plattform Gebude. The key would be particularly severe where the cause is
recommendations were developed jointly by the undereducation.
construction industry and the government and were 24 See KPMG International, 2011.
incorporated into a national action plan, Nationaler
Aktionsplan Energieeffizienz (NAPE). 25 See Setar, 2013.

9 See HM Government, 2013b. 26 For new buildings in Germany, the


Energieeinsparverordnung (Energy Conservation
10 See Klepeis, Nelson, Ott, Robinson, Tsang and Ordinance) sets requirements relating to basic
Switzer, 2001. Several studies assess the interrelation energy demand, taking into account the buildings
between constructed assets and health. For external insulation as well as the energy efficiency
instance, Wang et al., 2009 shows that the annual of its appliances (for heating, domestic hot water,
cost per user for bike and pedestrian trails was ventilation, cooling and for non-residential buildings
substantially lower than the per capita annual medical lighting).
cost of inactivity. Johnson et al., 2009 describes
the positive effect of improved indoor air quality on 27 For a detailed assessment of such risks in
childrens health. infrastructure projects, see World Economic Forum,
2015a.
11 The aspects here include aesthetics (design and
colours, for instance, for Alzheimer patients), indoor 28 Based on The Boston Consulting Group, 2015a; The
air quality (notably, asthma and allergy related to Boston Consulting Group, 2015b; and The Boston
volatile organic compound levels), comfort (for Consulting Group, 2015c.
instance, acoustic) and safety (such as slip prevention 29 For instance, in a survey of almost 15,000 companies
or infection control). The need for healthy buildings is from enterprises in the United Kingdom, innovation
critical, given that such a large proportion of a human activeness was consistently ranked as one of the
life is spent indoors. lowest priorities. See HM Government, 2014.
Shaping the Future of Construction: A Breakthrough in Mindset and Technology 55
30 See imshealth, 2015. 58 One caveat: solutions offering benefits from early
involvement must maintain full legal compliance,
31 See HM Government, 2013a and United Nations
ensuring equal treatment of all bidders, for instance,
Environment Programme, 2009.
and operating a robust system of checks and
32 See B20 Australia, 2014. balances.
33 See United Nations Environment Programme, 2009. 59 In a construction management at risk contract, an
ECI approach is often combined with a guaranteed
34 See HM Government, 2010.
maximum price.
35 Witness the shake-up that digital photography
60 See Arcadis, 2015.
brought about in its associated sectors.
61 Based on American Arbitration Association, 2009;
36 See European Commission, 2014a, European
RICS Professional Guidance, UK, 2012; The American
Commission, 2015 and United States Census Bureau,
Institute of Architects, 2010; The American Institute of
2007.
Architects, 2007; International Association of Dredging
37 It is less risky to recommend materials that have Companies, 2008; and Bundesministerium fr Verkehr
been used for many years than to recommend new und digitale Infrastruktur, 2015.
materials that might turn out to be faulty or less
62 See Department of Treasury and Finance, Victoria,
effective.
2009 for more details.
38 See also The Modular Building Institute, 2010.
63 See American Institute of Architects, AIA Minnesota,
39 It is also used to some extent by subcontractors School of Architecture - University of Minnesota, 2012
providing electrical services, for example. for a more detailed description and further examples
40 See wired.com. of IPD models.

41 See Schwab, 2016. 64 See Flyvbjerg, Bruzelius and Rothengatter, 2003.

42 Refer also to The Boston Consulting Group, 2015c. 65 See Morris, 2013 for a detailed account of the modern
view.
43 See Wall Street Journal, 2015a
66 See Bain & Company, 2015 and The Boston
44 See Financial Times, 2014 and The Guardian, 2015. Consulting Group, 2016b.
45 See IEEE Spectrum, 2015. 67 See Prater, 2015.
46 Demand response is a change in power consumption 68 See David Weekley Homes, 2015.
by a consumer to create a better match between the
demand and the supply. 69 Based on The Boston Consulting Group, 2015d.

47 See The Boston Consulting Group, 2016a. 70 Although the construction industry accounts for only
around 4% of employees in the United States, 20%
48 See The Boston Consulting Group, 2016a for a more of fatalities in the US private sector take place on
detailed description of the relevant technologies and construction projects. United States Department of
enabled use cases along the value chain. Labor, 2013.
49 See also Wall Street Journal, 2015b. 71 See OECD Development Centre, 2009.
50 Based on The Boston Consulting Group, 2016a. 72 See The Boston Consulting Group, 2015d for a
51 Work on such projects is often carried out in detailed description of the monitoring of construction
contaminated and radioactive areas and poses projects as part of the lean approach.
challenges throughout the projects life cycle. 73 See Cooper and Lee, 2009 for more details.
52 See also Forschungsinitiative ZukunftBAU, 2013. 74 Further dimensions of BIM include sustainability
53 See Conject, 2015. information on energy usage, emissions and
recyclability and facility management information on
54 See Arup, 2015. operability and maintenance.
55 See Autodesk, 2008. 75 See The Guardian, 2016 and This Is Money.co.uk,
56 The numbers do not add up because the design 2016.
and engineering costs are not included. Figures are 76 As stated in Stanford University Land and Buildings,
indicative not definitive: the actual proportions vary 2005, the actual ratio varies according to project type
greatly from project to project, depending on the costs and region. Rising energy costs are likely to increase
included (such as the cost of the building equipment the relevance of the operations phase.
or the labour costs). See The Builders Association,
2013. 77 World Economic Forum, 2016 describes the
environmental impact of the built environment.
57 See American Association of State Highway and
Transportation Officials, 2011.

56 Shaping the Future of Construction: A Breakthrough in Mindset and Technology


78 US figures from 2008 are based on Ellen MacArthur 104 See PwC and Ecorys, 2013. Countries included in
Foundation, 2013. the study: the Netherlands and France (lower-than-
average corruption levels); Poland, Spain, Hungary
79 Tarkett works closely with the Environmental
and Lithuania (average corruption levels); Italy and
Protection Encouragement Agency for a cradle-to-
Romania (higher-than-average corruption levels). See
cradle assessment of products.
also World Economic Forum, 2015c.
80 Based on Ellen MacArthur Foundation, 2013 and
105 See The Boston Consulting Group, 2016a for an
Ellen MacArthur Foundation and Fung Global Institute,
analysis of the digitalization trend in E&C.
2014a.
81 See The Center for Construction Research and
Training (CPWR), 2013.
82 See United States Department of Labor, 2015.
83 See Construction Industry Training Board (CITB),
2014.
84 See Gurjao, 2006.
85 See United States Department of Labor, 2014.
86 See Construction Industry Institute, 2005.
87 See UK Commission for Employment and Skills, 2016.
88 New techniques, such as BIM, may be used to
promote OSH, as explained by the International
Council of Research and Innovation in Building and
Construction, for example.
89 See The Boston Consulting Group, 2016a.
90 Deutsche Gesellschaft fr Nachhaltiges Bauen e.V.
91 See Capelli and Slocombe, 2013.
92 Figures are relevant for the US Construction market.
See The Center for Construction Research and
Training (CPWR), 2013.
93 In the context of PPPs, this topic is elaborated in
detail in World Economic Forum, 2015a.
94 Based on World Economic Forum, 2015a.
95 See HM Government, 2013b.
96 Again, in the context of PPPs, this topic is elaborated
in detail in World Economic Forum, 2015a.
97 Fractional dose means the fraction of the dose
that would render a person of average susceptibility
incapable of escape.
98 See World Bank, 2015b.
99 See Vaughan and Turner, 2013 and Majersik and
Stellberg, 2010.
100 See OECD, 2012.
101 See European Commission, 2014b.
102 See Fairclough, 2002.
103 The Boston Consulting Group estimates for 2012
are based on data provided by Euroconstruct
(www.euroconstruct.org) and Infrastructure United
Kingdom (www.gov.uk/government/organisations/
infrastructure-uk).

Shaping the Future of Construction: A Breakthrough in Mindset and Technology 57


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